UK pension schemes and administrators are being urged to upgrade systems in preparation for Collective Defined Contribution (CDC) reforms.
Under current proposed timelines, multi-employer CDC schemes are expected to secure regulatory approval in 2026, with a view to accepting contributions from 2027.
Festina Finance, a European provider of pension administration technology, has said CDC will introduce “significant complexity” to the market, and that schemes that fail to invest in appropriate technology could struggle to remain compliant or competitive once these new models become available.
Ir points out that this will be a new model that requires a “fundamental rethink” not simply “reheating” older DB systems. The firm’s UK country head Dan McLaughlin says: “CDC isn’t just another scheme type, that a systems upgrade will solve. It is a strategic shift that will require purpose-built solutions and fundamentally different tooling.
“It’s a mistake to think that CDC administration can be based on reheated DB systems. There are significant differences as CDC pensions demand real-time tracking of collective fund performance and dynamic income adjustments based on actuarial modelling.
The firm says this will require schemes to implement new data models that account for pooled assets and shares risks. They will also have to build adaptive calculation engines for variable benefit payments and deliver transparent and accurate member communications that explain collective risks and benefits.
At the same time there will be the need to comply with regulatory reporting standards unique to CDC governance frameworks.
McLaughlin adds : “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.
“But despite the complexity, this presents a huge opportunity. CDC offers a scalable opportunity to potentially offer more stable retirement incomes without reverting to the high cost of DB provision. The technology uplift is real, but the prize is worth it.”
