UK pension schemes and administrators should act now to prepare their systems for upcoming collective defined contribution (CDC) pension reforms, Festina Finance has said. 

The government previously confirmed its intent to make it possible for unconnected multi-employer CDC schemes to gain regulatory approval in 2026 and begin accepting contributions in 2027.

However, Festina Finance said that schemes must upgrade their technology and operational capabilities ahead of this if they wish to participate and remain compliant and competitive.

“CDC schemes are coming. We may not know exactly what form they will take, but they are coming, and providers need to be prepared, and this introduces significant complexity for technology," Festina Finance UK country head, Dan McLaughlin, said. 

“CDC occupies a new space and requires a fundamental rethink of how we track, calculate, and communicate benefits on a collective and dynamic basis.”

McLaughlin warned that "it’s a mistake to think that CDC administration can be based on reheated DB systems", noting that there are significant differences, as CDC pensions demand real-time tracking of collective fund performance and dynamic income adjustments based on actuarial modelling. 

This, according to McLaughlin, presents a unique challenge for administrators, who must implement new data models that account for pooled assets and shared risk; build adaptive calculation engines for variable benefit payments; deliver transparent, accurate member communications; and comply with regulatory reporting standards unique to CDC governance frameworks.

“CDC isn’t just another scheme type, that a systems upgrade will solve," he continued. "It is a strategic shift that will require purpose-built solutions and fundamentally different tooling."

However, McLaughlin emphasised that despite the complexity, this presents a "huge opportunity" for the pensions industry.

"CDC offers a scalable opportunity to potentially offer more stable retirement incomes without reverting to the high cost of DB provision," he stated. "The technology uplift is real, but the prize is worth it.”

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