With the right approach from trustees, Collective Defined Contribution has the potential to address long standing challenges around adequacy and sustainability in retirement provision, significantly improving member outcomes.
CDC is an exciting prospect, not just because of the potential for higher more stable member outcomes, but also because it shifts complex decision making to trustees, making retirement planning simpler for members.
It challenges us to rethink how we approach scheme governance, decision-making, and member communications from the ground up. Trustees have a direct influence on members’ retirement outcomes, if we are serious about addressing adequacy, we must be open to new approaches, and CDC gives us another tool to support better long-term outcomes.
Of course, clarity and member communications will be absolutely critical. We need to engage early, be transparent, and make sure members really understand what CDC means for them. That’s not always straightforward, especially when members come from different benefit backgrounds and bring different expectations around risk and certainty.”
The long-term nature of CDC also opens up new opportunities on the investment side. It gives us the space to think differently about strategy, including how we might access the illiquidity premium, but we have to be clear on our investment beliefs and consider whether these are aligned with the provider, and accountable in how we monitor performance. Setting guardrails can help us stay focused while managing risk in a measured way.
Strong governance will also be absolutely central. Trustees need to be involved early, approving scheme design, shaping the investment approach, and helping to build frameworks that support good decision-making in both the short and long term. There will be value in rehearsing difficult decisions, like how we might respond to a need to reduce pension increases, so we can approach those moments with consistency and confidence and remove emotional barriers to decision making.”
CDC gives us a real chance to offer members a more predictable retirement income. As trustees, we have a unique opportunity, and responsibility, to shape the future of retirement provision. We should be open to innovation within the market and consider how CDC may support member outcomes both in accumulation and decumulation. The path to adequacy and sustainability won’t be passive so trustees must lead with clarity, and collaboration.
