Transitioning to collective defined contribution (CDC) pension schemes could improve member outcomes, but will not “unpick” embedded inequalities such as the gender pensions gap, industry experts have warned.

Speaking at the Pensions UK annual conference, IGG trustee director, Tegs Harding, said that while CDC could improve expected retirement outcomes for members by up to 40 per cent, it would not address systemic inequalities within the pensions system.

“CDC won’t fix adequacy issues, such as the gender pensions gap or the ‘missing generation’ who have undersaved for their retirement,” she stated.

“There are also challenges when it comes to scheme design,” continued Harding.

"How do you determine what members get out compared to what they put in, and who should be placed in the same pool?

“Inequalities based on age, gender, location and profession raise serious concerns about fairness, and there is an argument that these groups should be divided into different pots,” argued Harding.

Despite her concerns, a snap poll of delegates found that 60 per cent believed employers and members would accept that the same contribution amount would not necessarily buy the same level of pension for everyone.

Harding also cautioned that the regulatory environment for CDC was more complicated, with implications for how schemes are managed and governed.

Echoing these concerns, BlackRock OCIO director, Sophie Dapin, warned that the operational requirements of CDC were “very different” from those of defined benefit (DB) and defined contribution (DC) arrangements.

“It requires a fundamental rethink about the nature of data transfer between different parties,” she added.

Dapin also highlighted the importance of effective member communication, warning that “if you can’t explain CDC in a way that makes members feel comfortable, it won’t work.”

Meanwhile, a further audience poll revealed that three-quarters of attendees favoured a multi-employer, whole-of-life CDC model, compared to 22 per cent who preferred multi-employer decumulation-only arrangements, and just 3 per cent who backed single-employer, whole-of-life models.

The discussion comes as the Department for Work and Pensions (DWP) continues to develop plans to expand CDC beyond single-employer schemes, following the launch of the UK’s first CDC scheme by Royal Mail in 2023.

Proposals for new whole-of-life and decumulation-only CDC models are expected to play a key role in broadening access to collective risk-sharing across the pensions landscape.

With this in mind, Festina Finance previously warned that schemes must upgrade their technology and operational capabilities ahead of this if they wish to participate and remain compliant and competitive, echoing data concerns raised by the Pensions UK panellists.

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