Future of Pension Provision? CDC Schemes: Q1 2026 - Landscape Overview 

Background

The Pension Regulator recently held a consultation on a draft Code of Practice which would allow multi-employer Collective Defined Contributions (CDC) pension schemes to be set up. 

CDC pension schemes have been on the horizon for several years. They are however difficult for many employers to set-up as they rely on achieving sufficient scale to pool risk (typically > 5,000 employees). Through the Government’s efforts in this area CDC will, relatively soon, be accessible for a lot more employers through third party providers. 

CDC schemes, at heart, are expected to offer a middle ground between Defined Benefit (DB) and Defined Contribution (DC) schemes. The cost to employers remains fixed whilst allowing individuals to benefit from scale and achieve, potentially, significantly greater returns and hence better benefits than a DC scheme.

What is a CDC Scheme 

In a CDC scheme, fixed contributions from the employer and members are paid into a pooled fund, rather than individual funds. The fund is then invested collectively, and the scheme offers a target benefit. 

The target benefit may be similar to a DB benefit, for example 1/100th of salary with a 50% spouse benefit. This is however a target and not a guarantee. Experience may mean that the benefit received is lower or higher than this target.

There are a number of benefits from the CDC.

Employer contributions still fixed
Employers pay fixed contributions, in the same way they would for a DC scheme, and so they don’t carry any immediate additional risk. 

Shared risk
With the pooled fund, risk is shared between members and not held on an individual level. Longevity is more predictable on a group level than an individual level and so there will be less impact than on an individual member.

Investment strategy
In a DC arrangement, as a member approaches retirement age it is typical to reduce their exposure return seeking assets, a process known as lifestyling. This reduces exposure to the market and limits the impact of a market dip close to retirement. This process does however also reduce the expected return on the assets.

This is not necessary in a CDC arrangement, as there will usually be a mix of retirees and non-retirees, allowing higher expected returns. 

Further, as the pooled fund will be large, there are more options with the investment strategy, for example the scheme may have access to assets, such as infrastructure, that would not be available to individual pots.

What’s the downside

While CDC schemes offer a lot of benefits, there are some key issues to consider. 

A target, not a guarantee
First and foremost, the benefit is not guaranteed. A scheme may target a benefit of 1/100 of salary, but if there is negative experience in the scheme, pensions may need to be reduced. 

Communication
CDC pensions and risk sharing may be difficult to understand from a member perspective. It is absolutely essential that members understand the risks and that a reduction to pension is possible, and so clear effective communications are vital.

Intergenerational fairness 
For a CDC scheme to work optimally, there would always be new members joining, keeping the average age constant in the long-term, contributions coming in and avoiding the need for de-risking of the investment strategy.

This may not always be the case and there is a risk that younger members are disadvantaged compared to older members. For example:

• CDC schemes can invest in more risky assets on the assumption that there is a stable membership – i.e. younger members take on the brunt of the investment risk and then when they are older, the investment risk effectively moves to subsequent generations. 
• If the CDC scheme were to be shut down in the future then the assets would need to be de-risked and there would be a generation who have taken on a significantly disproportionate level of investment risk relative to return. 
• A younger member’s contribution should, in the spirt of fairness, generate more pension as it A) has more time to generate return on investment and B) has more investment risk attached to it which should be proportionately reflected. 

This is something that can and should be considered in scheme design – for example, higher accrual rates at younger ages could be provided to members to compensate. 

A relative unknown

CDC schemes are a new term and will be relatively unknown. With this may naturally come scepticism over their value and security from members who are putting their capital at risk. 

With that said, whilst this is a valid concern and we expect that, at best, there will be a slow transition to CDC schemes, it is a tried and tested system in the Netherlands and Canada.

 
Regulation and mitigation

There will be a Code of Practice in place for CDC schemes, and this should allay several downsides and help build trust in the system. A CDC scheme needs authorisation to be set up, the authorisation is based on six key criteria:

1. Fitness and propriety - relevant persons, such as trustees and those who can amend the rules, are subject to fitness and propriety test, ensuring integrity and competence.
2. Systems and processes – governance processes must be robust and IT systems sufficient.
3. Member communications – schemes must have adequate systems for communications to members so for example members can understand risks.
4. Continuity strategy – a strategy must be in place for a triggering event, such as employer insolvency.
5. Financial sustainability – schemes must have sufficient resources to meet costs without increasing cost to members.
6. Sound scheme design – a viability report must be provided at outset. There are tests that need to be met to gain authorisation.

Where does CDC sit today

Following the introductory framework introduced in the Pension Schemes Act 2021, the first CDC code of practice came into force in August 2022. 

Royal Mail set up the first CDC scheme in the UK in 2024, this is currently the only authorised UK scheme. The scheme target benefit is 1/80th of pensionable pay each year, along with a 3/80th lump sum. 

At present only single employer schemes can be authorised and the authorisation process is expensive. The consultation for multi-employer CDC schemes closed on 13 February 2026. If the code is approved, it could open the possibility of CDC provision to many more employers who could not set up a CDC scheme on their own. 

This would allow the scale needed to push CDC into the mainstream and it is currently expected that at least one third-party multi-employer CDC scheme would be in place in the next 18 months.

If you have questions regarding CDC or would like to explore opportunities in this area, please do contact us.

Liam Alford, Consultant & Actuary
Quantum Advisory
April 2026