Author: Andre Clarke
For a long time, Collective Defined Contribution (CDC) pension schemes were discussed by actuarial experts, but only ever as a theoretical idea in the UK. That changed with the launch of the Royal Mail Collective Pension Plan. More recently, the UK government has introduced new regulations to make it easier for employers to adopt CDC through unconnected multi-employer schemes.
CDC is becoming a serious strategic consideration for employers, pension providers and trustees, but it's not a one-size-fits-all solution. Employers will approach CDC from different starting points. Workforce size, workforce profile and existing pension arrangements will all play a part, and they will need to work through a series of decisions before they can judge whether CDC fits and, if so, how.
What challenges are you trying to solve?
Before anything else happens, employers need to ask themselves two key questions: What specific organisational pension challenges are they trying to address? And how could a CDC scheme provide a solution?
A truly credible assessment will cover the full change of CDC options, testing the employer's objective, workforce fit, actuarial modelling, governance capacity, administration readiness and member experience.
It will bring on board the right stakeholders, from boards and trustees to unions and employee representatives. And it will answer, in tailored and certain terms, how a CDC solution is relevant and viable for a company's long-term goals for its pension provision.
Who makes the decision?
CDC schemes can be divided into two different design types. In a whole-life CDC scheme, members accrue a target pension during their working life and receive this income once they retire. Retirement-CDC is a retirement income option accessed from a Defined Contribution (DC) pot.
Gallagher's research shows that 32% of the 250 UK pension professionals surveyed favour whole-life CDC, 22% favour retirement CDC, and 36% say both are equally appealing. Among employer respondents, preference for whole-life CDC is somewhat stronger, at 38%. It's important to remember the two are not mutually exclusive — they serve different roles and individuals could use both through different pension savings.
There is an important distinction to remember here. Employers decide whether or not to offer whole-life CDC. Retirement-only is, generally at least, a different case. It will most likely be offered as a retirement income option by master trusts, so it is the master trust's decision of whether to offer it and whether to set it as the default under Guided Retirement duties.
An employer may, however, consider this a factor when selecting a master trust for their employees.
Which is the best access route for your company?
CDC adoption will also depend on the routes available to employers. CDC pensions can be offered as a single-employer model or through a multi-employer structure. The latter can connect multiple, unconnected employers under one umbrella. This can be thought of as similar to a DC master trust arrangement, but we've also seen other structures of joint ventures and mutuals arising, and could see sector-wide schemes set up for employers in the same industry. Each route has different implications for cost, control, governance, scale and communication.
More than half of respondents (53%) said they were more likely to pursue a multi-employer or master trust CDC arrangement. These CDC arrangements are widely sought because they may be more scalable and easier for many employers to access. The logistical challenge and the high cost of setting up a single-employer scheme can be prohibitive, especially for smaller companies that are more limited in governance infrastructure and bandwidth.
However, there is still an argument for single-employer schemes — and indeed, 34% of respondents would favour it, in theory at least. Some employers will want more control over design, investment strategy and governance than a commercial master trust may allow.
For employers, the challenge is finding the right balance between ease of access, cost, control and member outcomes.
Will employees and members understand what they are receiving?
CDC is funded like a DC scheme but experienced quite differently by members. Communicating that difference to a workforce is a considerable challenge. How can you explain the model and its benefits without overpromising? While not a barrier, it's a stumbling block, and one that firms cannot afford to trip over.
If CDC is described too simply, members may assume the target income is guaranteed. If it is described only in technical language, members may not understand it or trust it.
A strong communications strategy can help avoid this by making CDC feel understandable, relevant and credible. It could mean stripping out jargon, explaining benefit adjustments in plain English and visually, using relatable examples and repeating key messages over time. Done well, communications can turn a complex pension model into something members understand, value and trust.
The final evaluation
The right assessment should answer practical questions: who makes the decision? What route is available? What governance is needed? How would payroll and administration work? What would it cost? How would members understand it?
These governance questions can depend on a company's size. Larger employers may be in a stronger position to assess CDC's suitability earlier, often having more governance capacity to evaluate it. However, the rise of multi-employer solutions are removing the barrier for smaller employers, so there is nothing holding them back from giving serious thought to CDC anymore.
As an adviser to the UK's first CDC scheme, Gallagher brings practical CDC experience alongside broader expertise across pensions and employee benefits. This wider perspective can help employers consider CDC as part of their overall benefits strategy, taking into account what it could mean for both their organisation and their employees. Access the full CDC Report 2026 or speak to one of our experts.
