The Society of Pension Professionals (SPP) has published a guide warning that while collective defined contribution (CDC) schemes could play a transformative role in improving retirement outcomes, their success will hinge on how effectively they are implemented.

The guide describes CDC as “one of the most promising developments in the UK’s pension landscape”, combining the income-for-life ambition of defined benefit with the cost predictability of defined contribution.

However, it stressed that scaling CDC beyond early adopters will require careful navigation of governance, administration, communication, investment strategy, and legislation.

Published as the government prepares to bring forward regulations enabling unconnected multi-employer CDC schemes, the report argued that the next phase of CDC development must move beyond theoretical design and address real-world operational challenges.

These include managing benefit volatility, ensuring trustees have robust risk management frameworks, and clearly communicating to members that target benefits are not guaranteed and may be adjusted up or down.

The guide also highlighted cost and delivery as critical factors.

It suggested multi-employer CDC models were likely to be more viable for most employers than single-employer schemes, offering economies of scale and lower barriers to entry, while retirement-only CDC could provide a collective alternative to drawdown and annuities at decumulation.

Commenting on the publication, SPP CDC Committee chair, Keith McInally, said that CDC offered an opportunity to rethink retirement income provision more fundamentally.

“CDC offers us the chance to rethink how retirement income is delivered, while contributing to the broader economic and social fabric of the UK,” he explained.

“While much has been said about CDC’s design, in particular the pooling of risk to provide higher expected retirement incomes, less has been said about the next critical step - real-world implementation.

"This guide from the SPP should help to illuminate that path,” added McInally.

The SPP said international experience, including large-scale collective schemes in Denmark and the Netherlands, showed CDC could be delivered cost-effectively, but warned that poor communication or weak governance could undermine confidence if not addressed early.

With regulatory support for both multi-employer and retirement CDC expected to expand, the report concluded that the UK is approaching a critical moment at which successful implementation will determine whether CDC fulfils its promise or remains a niche solution.

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