Collective defined contribution (CDC) schemes
Collective defined contribution (CDC) schemes

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

  • Collective defined contribution (CDC) schemes
  • What is defined ambition?
  • What is a collective defined contribution scheme?
  • Advantages of CDC schemes
  • Disadvantages of CDC schemes
  • The government’s CDC work
  • What will the second CDC framework look like?
  • What are the next steps?
  • Defined ambition alternatives to CDC

FORTHCOMING DEVELOPMENT: After a first failed attempt to introduce a CDC framework (through the Pension Schemes Bill 2019), the Pension Schemes Bill 2020 was reintroduced in Parliament on 7 January 2020. This 2020 Bill (which differs from its 2019 predecessor only in minor ways) 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.

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,