Collective defined contribution schemes

What is a collective defined contribution (CDC) scheme?

One of the main aims of a collective defined contribution (CDC) scheme is to supply funds sufficient to provide a targeted income and to provide at least some inflation proofing for it. An employer makes fixed contributions to the scheme but with no liability to fund a certain level of benefits. Members are informed of their target income in retirement based (for example) on a percentage of their career average revalued earnings. Critically, this target income is an ambition—it is not guaranteed. This means that if the assets held by the scheme are insufficient to pay the target pension, a lower level of benefits may ultimately be payable. The contributions by and in respect of members are aggregated into a single pool of assets, which is invested by the trustees for future growth over time. When members retire they are paid benefits from this pool of assets and there is no need to purchase an annuity from an external provider, for example.

A CDC scheme is a type of ‘defined ambition’ scheme.

For information on the meaning of CDC, the

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