Glossary · UK
What is Collective Defined Contribution (CDC)?
A pension scheme type (launched in the UK from 2023) where contributions go into a shared fund. Members receive a target income in retirement, but this is not guaranteed — it can go up or down depending on investment returns.
Full Definition
Collective Defined Contribution (CDC) is a pension scheme design that sits between traditional Defined Contribution (DC) and Defined Benefit (DB) schemes. In a standard DC scheme, each member has their own individual pot that grows with investment returns and is converted to income at retirement. In a DB scheme, the employer promises a guaranteed income regardless of investment performance. CDC schemes pool contributions from all members into a single fund. The scheme aims to pay a target income in retirement, but unlike DB, this target is not guaranteed — it can be increased or reduced depending on how the collective fund performs. The first CDC scheme in the UK was launched by Royal Mail in October 2023 under rules introduced by the Pension Schemes Act 2021. Royal Mail's scheme covers around 130,000 employees. CDC schemes aim to provide more predictable outcomes than individual DC pots (because pooling reduces individual longevity risk) while costing less than DB schemes (because the employer bears no investment risk). A smoothing mechanism means that good years partially subsidise bad years, reducing the volatility individual members experience. CDC schemes must be authorised by The Pensions Regulator (TPR) and meet specific actuarial requirements. Portability is a known limitation: transferring out of a CDC scheme during accumulation may be complex, and the target income has no statutory protection in the same way as DB. The Government has consulted on expanding CDC to multi-employer schemes.