Collective DC pensions – where are we now?

This article was written by Jack Gillions and Hayden Searle

We reported last year on the DWP’s consultation on new draft regulations for unconnected multiple employer CDC Schemes.

After a long time with little movement in the area since the publication of that consultation, there has been a flurry of activity and commentary on the future of CDC over the last few months, largely driven by the DWP’s April update. Pensions Minister Torsten Bell announced that new regulations will be laid in Autumn this year to permit the establishment of multi-employer CDC schemes.

If the regulations do encourage employer participation, this will mark a significant step in the evolution of CDC pensions in the UK, with the potential to broaden access to collective pensions beyond the single-employer model currently in place.

Opening the Door to Wider Participation

The push for multi-employer CDC schemes is designed to make CDC more accessible to a wider range of employers, particularly those unable to sponsor a scheme on their own.

The move has already prompted market interest. In May, TPT Retirement Solutions declared its intention to design a new multi-employer “whole life” (i.e. providing members with a full savings to retirement member journey) CDC scheme, aiming to complete authorisation by the end of 2026. TPT is the first provider to publicly commit to entering this space, signalling that the proposed regulatory changes could be well received by the market. TPT has also indicated that it will develop bespoke single-employer CDC schemes for larger employers who are looking for a tailored solution.

Why Multi-Employer CDC Matters

The Royal Mail’s single-employer CDC scheme has demonstrated the potential of collective pensions to deliver more stable and generous retirement outcomes and unsurprisingly was very well received by Royal Mail’s employees, with the Royal Society of Arts' CDC forum reporting earlier this year that 99.8% of those eligible signed up to the scheme.

However, the model has so far remained out of reach for most employers, due to the complexity and cost of establishing a standalone scheme.

Multi-employer CDC schemes could change that. By allowing unrelated employers to participate in a single scheme, the model offers economies of scale and risk pooling benefits that could make CDC a viable option for a much broader segment of the market. This would be a key step in the development of CDC, as it will open up the market to commercial providers, including master trusts. 

As Bell noted in his announcement, modelling by the PPI suggests that, by pooling longevity risk at scale, multi-employer CDC schemes should deliver materially better outcomes for members, far beyond even the difference between single employer CDC schemes and standard DC scheme annuities, with expected replacement rates of 69%, 47%, and 40% respectively (replacement rate being a measure used to assess pension adequacy, by comparing pension income to an individual's pre retirement income).

These developments come at an important moment, with the UK facing a growing challenge around retirement adequacy. While automatic enrolment has improved participation, many savers are on track for poor replacement rates in retirement. 

CDC schemes could offer a potential solution. By pooling investment and longevity risk, they can deliver more predictable and sustainable retirement incomes than individual DC pots. This is particularly relevant as the limitations of annuity-based decumulation become more apparent in a high-interest, high-volatility environment.

Decumulation-Only CDC: A Quicker Win?

An exciting part of the DWP’s announcement relates to the comments on decumulation-only CDC schemes. The consultation last year did not include the option for providers to offer decumulation-only CDC (though the DWP did ask stakeholders to share insights into how this might work), so this marks a substantive step forward. 

Decumulation-only CDC schemes would allow savers with existing DC pots to access CDC-style benefits at retirement, without needing to contribute to a CDC scheme throughout their working life. The new “Guided Retirement” requirements, contained in the Pension Schemes Bill will start to roll out as early as April 2027. This means DC schemes will need to design and offer one or more default pension benefit solutions for members or consider how to provide an alternative via a third-party provider. DC schemes will therefore need to think about how they will offer decumulation solutions and how CDC might form part of this. 

If implemented, these would offer a faster route to market and could provide immediate benefits to retirees seeking a stable income without the complexity of managing drawdown or the cost of annuities. The potential for these schemes to deliver better outcomes for members, particularly in terms of longevity risk pooling and income stability, makes them an attractive proposition for members.

A Word of Caution

While the direction of travel is promising, it is important to temper expectations. There are a number of unanswered questions. Chief among them is how the government intends to incentivise employers to participate in CDC schemes, particularly when master trust DC arrangements remain the default for many. While it is encouraging to see actors such as TPT engaging with the proposed changes, it will be up to employers to provide the “meat on the bones” for CDC.

There are also design challenges to consider. As highlighted in recent PPI research, CDC is not a single model. The way in which risk is pooled, including between generations, can have significant implications for fairness and member outcomes. For example, “flat accrual” in CDC aims to provide equal retirement benefits in real terms for equal contributions. This can result in significant intergenerational cross-subsidies as a result of pooled investment risk, whereby younger members may end up subsidising older members, particularly in the early years of a scheme. 

Dynamic accrual CDC attempts to address this by ensuring that the additional pension income received in exchange for a corresponding contribution has a present value equal to that contribution, so members who contribute for longer benefit more from investment gains. These different models present opportunities for flexibility, but such complexity can be a challenge. Deciding between different types of arrangement may be difficult and the concepts are complicated, which could also make plain English member communications a significant challenge. Where “defined ambition” schemes exist elsewhere (which replicate many aspects of UK CDC), such as in the Netherlands, this has caused disquiet on occasion.

Exploring New Models: Collective Drawdown

The PPI’s latest briefing note also explores alternative models such as “Collective Drawdown”, which pools longevity risk but not investment risk. This model avoids some of the pitfalls of shared indexation CDC schemes—such as benefit volatility and intergenerational subsidy—while still delivering a stable income in retirement.

While Collective Drawdown remains a theoretical model for now, its inclusion in the policy conversation highlights the growing interest in flexible, pooled decumulation solutions that can sit alongside or within existing DC frameworks.

Looking Ahead

The Government’s consultation laying down the draft multi-employer CDC legislation marked an encouraging step forward in the evolution of CDC pensions. There are significant potential benefits for members. However, the success of these reforms will depend on the willingness of employers to engage with these new models.

We welcome the proposed changes and the broader ambition to make CDC more accessible. We look forward to reviewing the finalised regulations later this year, further analysing industry responses, and continuing to support clients as they navigate this evolving landscape.