Collective Defined Contribution Schemes – A way forward for the housing sector?

Collective defined contribution (CDC) schemes are emerging as an innovative middle ground between traditional defined benefit (DB) and defined contribution (DC) schemes. Many industry bodies in the housing sector are in the process of exploring whether sector-wide CDC models could replace expensive legacy DB schemes or complement existing DC offerings.

What is a Collective Defined Contribution Scheme?

It is important to understand what a CDC scheme is, and how it differs from DB and DC pension schemes to see how these types of schemes might apply to the sector.

CDC is often said to combine a number of difference aspects from DC and DB:

1. CDC schemes pool contributions from members and employers in a collective fund. Therefore, unlike DC arrangements, assets are managed collectively, and benefits are paid from shared assets rather than individual pots.
2. Benefits are funded by contributions from members and the employer. These contributions are payable on a fixed and regular basis, set by the employer, like a standard DC scheme. The employer benefits from cost certainty, as there is no risk of any future deficit becoming payable like in a DB scheme. 
3. Members receive a “target” pension in retirement, but this target pension can be adjusted depending on investment performance. This means that members’ benefits (and therefore scheme liabilities) are not promised in the way a DB scheme would provide, but the target sets out an aim that the employer hopes can be met if investment performance is as projected. 

Essentially, the idea is that if contributions are pooled then the CDC scheme will be able to make better investments for members, resulting in better incomes on retirement, with the intention of bridging the gap between DB and DC schemes’ retirement outcomes.  

As it stands, only one CDC scheme exits, the Royal Mail Collective Pension Plan. However, new legislation is set to extend the current CDC market to unconnected multi-employer CDC arrangements, with these changes and an updated Pensions Regulator Code of Practice set to come into force as soon as possible. It is anticipated that multiple employer CDC schemes will be able to apply to the Pensions Regulator for authorisation to operate from as early as the summer of 2026, and this will potentially increase the possibility of other CDC schemes being established.

TPT Retirement Solutions, who run the Social Housing Pension Scheme, is currently exploring and developing this option and is expected to provide their CDC offering in early 2027.

CDC and the Housing Sector 

In a sector where many organisations operate under tight margins and workforce recruitment pressures, many industry bodies suggest that CDC offers a distinctive approach to retirement provision that aligns well with the particular challenges and make-up of the housing sector. We can see three key areas that CDC could have an impact on the housing sector.

1. Financial certainty

   CDC schemes can offer predictable contribution rates and avoid the contribution volatility and deficit risks inherent in DB schemes.

2. Member benefit outcomes and retention

   It is anticipated that collective investment strategies will generate higher and more stable returns compared to individual DC pots.

   The housing sector is operating in a market where recruitment and retention is particularly difficult. A good pension offering and a more dependable retirement income can attract and retain a skilled workforce.

3. Multi-employer options

   Given that setting up a CDC scheme at the moment is costly, time consuming and appears to be only within reach of larger employers, the advent of multi-employer CDC makes CDC a much more viable option for housing providers, with costs being shared across participating employers in forming a multi-employer scheme and the option to join a CDC master trust.

A Way Forward?

CDC schemes may offer a promising pension solution for housing-sector organisations seeking long-term financial stability while improving retirement outcomes for employees.

However, given that CDC is still in its infancy, a lot still remains uncertain. Housing providers should keep a watchful eye on developments to multi-employer CDC regulations and begin engaging with advisors now to inform internal discussions on whether CDC could be a strategic next step. 

As always, planning is key to ensuring that your organisation is ahead of the curve. If you would like to discuss CDC in more detail and how it might work for your organisation, please contact a member of our Pensions Team. 

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