Pension experts sceptical over CDC schemes

Communication barriers slow adoption

Explaining CDC’s structure poses a major challenge. Nearly half of those surveyed (48%) said key features of the model would be difficult to communicate. Another 26% identified the risk of retirement incomes falling as the hardest issue to convey to members.

CDC schemes combine fixed employer contributions with collective investment and risk-sharing. The goal is to provide a steady retirement income without the open-ended funding commitments of defined benefit (DB) plans.

Andrew Worthington, a partner at Sackers, said the biggest challenge isn’t the model itself but familiarity. “As a new approach for the UK pensions market, building confidence will take time, like any innovation,” he said. “Many respondents also highlighted concerns about potential reductions in retirement income. In practice, DC structures already carry uncertainty, with outcomes tied to market performance and individual decisions.”

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Worthington pointed to overseas examples where similar arrangements have delivered strong results. He cautioned that wider UK adoption would require continued policy support, clear regulation, and practical experience. While he welcomed the government’s proposed flexibility for retirement-only CDC schemes, he stressed that momentum must continue.

Worthington said, “CDC has the potential to become an important third option alongside DB and DC. It gives employers certainty over contribution costs while giving members the benefits of collective investment, risk pooling and the prospect of a more predictable retirement income than many individuals can achieve through traditional DC arrangements.”

“This momentum will need to continue as CDC cannot succeed through single employer demand alone; it needs policy leadership to build confidence and encourage wider adoption,” Worthington said.

Larger employers lead early interest

A report by Gallagher, surveying 250 employers, trustees, and pensions professionals, found that 76% plan to explore CDC within the next three years. Interest is strongest among larger companies, with over 80% of respondents from firms with more than 250 employees expecting to consider the model. That compares to 51% of smaller employers.

The gap reflects broader industry trends. Larger employers typically have dedicated pensions teams and stronger governance, making it easier to evaluate new approaches. Smaller firms often lack the resources to handle complex regulations or absorb upfront costs.

When asked what would increase their confidence, respondents cited clearer regulatory guidance (39%), proven results from early adopters (38%), and positive feedback from unions or employee representatives (37%). Many prefer to wait for more test cases before committing.

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Multi-employer models appear to be the preferred path. More than half of respondents (53%) said they would consider a multi-employer or master trust CDC arrangement. Only 34% favored a single-employer model. Sector-wide schemes also drew interest, with 86% calling them appealing.

David Piltz, CEO of Gallagher’s Benefits & HR Consulting Division, described CDC as a potential solution to a long-standing problem: how to offer predictable retirement outcomes without the financial risks of DB plans. “The challenge is turning interest into action,” he said. “The framework exists, but the industry must explain CDC in simple terms.”