Collective defined contribution (CDC) pension schemes could play a key role in addressing long-standing challenges around adequacy and sustainability in retirement provision, according to Zedra managing director, Kim Nash.

Following the Pensions Minister's announcement that legislation enabling multi-employer CDC schemes will be introduced in the autumn, Nash described CDC as “an exciting prospect” for trustees, with the potential to deliver “higher, more stable member outcomes” by shifting complex decision-making from members to trustees.

“It challenges us to rethink how we approach scheme governance, decision-making, and member communications from the ground up,” she said.

“If we are serious about addressing adequacy, we must be open to new approaches, and CDC gives us another tool to support better long-term outcomes.”

Her comments come amid growing concern over adequacy in the global defined contribution (DC) market, with recent research from the Thinking Ahead Institute (TAI) finding that more than half (60 per cent) of global defined contribution (DC) organisations were concerned members were not saving enough for retirement.

Nash stressed that early engagement, transparency, and clear communications will be “absolutely critical” to CDC’s success, particularly when members have varying benefit histories and differing expectations around risk and certainty.

On the investment side, she suggested the long-term nature of CDC opened “new opportunities”, including potential access to the illiquidity premium, provided trustees are clear on their investment beliefs, aligned with their provider, and accountable in monitoring performance.

“Setting guardrails can help us stay focused while managing risk in a measured way,” she noted.

Strong governance, she warned, must underpin the entire approach, with trustees involved from scheme design through to building decision-making frameworks, including “rehearsing difficult decisions” such as how to respond to a need to reduce pension increases.

Nash concluded: “CDC gives us a real chance to offer members a more predictable retirement income. The path to adequacy and sustainability won’t be passive, so trustees must lead with clarity, and collaboration.”

With regulatory changes expected to make it easier for schemes to create a CDC option, nearly half (41 per cent) of companies with DC schemes are ‘very likely’ to introduce a CDC or other risk-sharing alternative, research from Hymans Robertson has suggested.

The firm’s analysis also found that nearly a third (29 per cent) of respondents viewed protection against members exhausting their pension pot in retirement as an appealing feature of CDC, while a quarter (25 per cent) cited the potential for higher pensions from the same level of contributions.

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