Collective defined contribution (CDC) schemes—an introduction
Collective defined contribution (CDC) schemes—an introduction

The following Pensions practice note provides comprehensive and up to date legal information covering:

  • Collective defined contribution (CDC) schemes—an introduction
  • What is defined ambition?
  • What is a collective defined contribution scheme?
  • Advantages of CDC schemes
  • Simplicity
  • Risk sharing
  • Higher returns on invested funds
  • Economies of scale
  • Perceived greater certainty of post-retirement income than DC schemes
  • Disadvantages of CDC schemes
  • More...

FORTHCOMING DEVELOPMENT: The Pension Schemes Bill 2020 was introduced in Parliament on 7 January 2020. This 2020 Bill aims to provide a framework for the establishment, operation and regulation of collective money purchase schemes (commonly known as collective defined contribution (CDC) pensions). For more information, see News Analysis: The Pension Schemes Bill 2020 (Part 4)—collective money purchase schemes.

A collective defined contribution (CDC) scheme is a type of defined ambition scheme.

What is defined ambition?

One of the key principles of defined ambition is the idea of ‘risk sharing’ in the sense that neither the employer nor the members bear all or a majority of the risk in the pension scheme. A defined ambition pension scheme has some features that are found in a traditional defined benefit (DB) pension scheme and some features that are found in a traditional defined contribution (DC) pension scheme.

According to the Department of Work and Pensions (DWP), the:

'aim of a [defined ambition] pension would be to create greater certainty for members than is provided by a pure DC pension. It would also seek to ensure less cost volatility for employers than current DB pensions.'

In a traditional DB scheme, the employer tends to bear all of the risk in terms of the fund's investment performance, inflation and member longevity. There has been a marked shift away from

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