UK. Can CDCs solve the pension funding problem?
Defined-benefit (DB) pension schemes have been in decline for years and in most professions younger employees are offered defined-contribution (DC) schemes, which lack many of the former’s benefits. But a new option aims to deliver the best of both types of pensions.
This week, the government has issued a consultation on draft legislation for Collective Defined Contribution (CDC) Schemes, spurred on by Royal Mail (RMG) which had been lobbying for new legislation to accommodate CDCs since 2018.
CDC pensions work by setting a target pension amount for members each year, based on employee and company contributions. As with a DC scheme, pension payments are not guaranteed, and move up and down in line with assets. However, like a DB scheme, the funding risk is pooled between all scheme members and they are entitled to payments throughout their retirements.
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