The government has launched a consultation on a new way to draw pension benefits.
Unless you work for Royal Mail, you may not have come across Collective Defined Contribution (CDC) pension schemes. Think of CDC as a middle ground between:
- Defined Benefit (DB) schemes: Guaranteed benefits (usually linked to final or average salary) funded by variable contributions.
- Defined Contribution (DC) schemes: Variable benefits funded by fixed contributions.
CDC schemes typically feature fixed contributions and targeted (but not guaranteed) benefits. Like DB schemes, they pool investment and mortality risks.
DB schemes have largely disappeared from the private sector due to the high cost of variable contributions, especially during periods of low interest rates. DC schemes, on the other hand, dominate private sector pensions, boosted by the introduction of automatic enrolment 13 years ago.
Royal Mail’s CDC scheme, announced in 2018 and launched six years later, remains the UK’s only example. One reason is scale: CDC works best for employers with large workforces to make risk pooling viable. Most big employers have already shifted from DB to DC and see little incentive for another major change.
Despite this, successive governments have sought to promote CDC. Current Pensions Minister Torsten Bell recently told the Financial Times:
“We should be confident that this will play a significant part in our future pension system.”
His comments coincided with the launch of a consultation on retirement CDC schemes, which will differ from existing models by:
- Accepting transfers only from retiring members of other schemes; and
- Including only non-contributing pensioner members.
Benefits will be targeted rather than guaranteed, which the government argues could deliver higher overall returns. Legislation currently before Parliament will also require schemes to offer ‘Guided Retirement’, potentially boosting CDC adoption.
Retirement CDC is still some years away. In the meantime, if you’re approaching retirement, seeking professional advice remains essential for optimising your pension benefits.
Important Note:
The value of investments and income can fall as well as rise, and you may not get back what you originally invested.
19th December 2025
