More than half (52 per cent) of employers, trustees, and pension professionals would be comfortable being an early adopter of collective defined contribution (CDC) schemes, research from Gallagher has shown.

Its CDC Report, which explored industry confidence levels, the barriers to implementation, and the path to scale for CDC schemes, also found that 76 per cent of pension decision-makers were planning to consider a CDC option within the next three years.

Among respondents working with companies of fewer than 250 workers, 51 per cent expected to explore CDC pensions within three years, rising to 80 per cent among larger companies.

Gallagher said the findings indicated that larger employers could be better placed to assess CDC at this stage, as they are more likely to be able to tackle cost barriers, have specialist pension support in place, and have strong internal governance structures.

It added that smaller companies could face greater obstacles around governance capacity and internal resource.

Many organisations were hesitant to move first in adopting CDC, and when asked what could improve their confidence, 39 per cent cited clearer regulatory guidance, 38 per cent wanted proven results from early adopters, and 37 per cent sought positive feedback from unions or employee representatives.

“In a very short period, the conversation around CDC has moved forward at blinding speed,” commented Gallagher senior vice president, investment consulting, Andre Clarke.

“The Royal Mail scheme gave the UK market its first live example. It is no longer possible to think of CDC as a niche actuarial idea; it is stepping into the spotlight, demanding close attention.”

“However, our research paints a more nuanced picture. There’s a clear difference between exploring CDC as an option and taking the steps to introduce it into an existing benefits package.

“Employers and trustees want to see more test cases, and they want greater clarity on regulation and delivery. Then they want to understand what it really means for their specific workforce.

“It is here where an experienced consultant can help firms assess their options in the CDC market and decide which arrangements could suit their workforce best.”

Respondents were more likely to consider a multi-employer or master trust CDC arrangement (53 per cent) than single-employer models (34 per cent).

Sector-wide arrangements were attracting greater interest, with 86 per cent saying they would find a sector-wide CDC scheme appealing.

Nearly a third (32 per cent) of respondents favoured whole-life CDC, while 22 per cent favoured retirement-only arrangements, and 36 per cent views both models equally.

“For decades, employers and pension professionals have struggled with one question: how can we offer good retirement outcomes for employees without putting too much risk on the balance sheet?,” added Gallagher benefits & HR consulting division CEO, David Piltz.

“A CDC scheme offers a potential alternative. It is an aspirational model, and one that could offer more predictable outcomes than a traditional DC scheme and without the high-risk guarantees of a defined benefit plan.

“The challenge is converting that interest into adoption. If a firm is unsure about CDC, it’s likely due to a mix of factors: a low number of test cases, competing business priorities, and a hesitance to step out first.

“The science, regulations, and guidance are in place, but the industry needs to communicate CDC in a way that everyone can understand. That is the only way that the sector will translate the growing interest into this emerging area into real and tangible action.”

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