A new type of pension scheme has opened for applications across the UK. Collective Defined Contribution (CDC) schemes will offer retirement savers a ‘middle ground’ option between existing schemes.
With defined benefit (DB) schemes, such as final salary schemes, employees are promised a guaranteed income, and with defined contribution (DC) schemes, which are more common nowadays, the saver bears the risk of how much pension they eventually end up with. DB schemes have become increasingly rare as they are expensive to run with people living for longer.
The Department for Work and Pensions (DWP) said that CDCs have the potential to provide improved retirement returns for savers, with more predictable costs for employers. Both employers and employees contribute to a collective fund from which individual retirement incomes are drawn, with trustees responsible for oversight to ensure schemes are viable and can meet their legal requirements and commitments to members.
