Pension system overhaul ‘major step forward’ as retirement savings could rise by 60%

Under the changes, CDC schemes will no longer be limited to single employers, they’ll be able to cover workers from multiple companies, opening them up to far more people.

The government is also consulting on a new ‘Retirement CDC’ option, which would let savers move their existing pension pots into a collective scheme when they retire, potentially giving them a higher and more stable income in later life.

The new rules mark a major shift in how pensions work, aiming to give people more stability and higher income in retirement. Unlike standard Defined Contribution (DC) pensions where everyone manages their own pot, Collective Defined Contribution (CDC) schemes pool everyone’s savings together.

This allows the fund to share risks and deliver steady payments for life – and research suggests members could end up with a higher average income than from traditional individual accounts.

The reforms also respond to growing demand for greater security in retirement. Surveys show nearly three-quarters of workers in DC schemes want a guaranteed income when they stop working, and CDC pensions are designed to meet that need.

David Pitt-Watson, Director of the CDC Forum described the development as “a major step forward for pension provision in Britain”.

He emphasised that implementation by pension-sponsoring employers would enable private sector employees to access “an effective pension which will last them until the day they die”, matching provisions currently available to public sector workers.

The expansion addresses longstanding calls from the pensions industry for broader CDC access. Research indicates that half of current pension savings are withdrawn as lump sums, despite strong preference amongst savers for guaranteed lifetime income.

| GETTY

CDC schemes work by pooling everyone’s pension contributions into one shared fund, rather than keeping separate individual accounts like traditional Defined Contribution (DC) pensions.

This collective system provides members with steady monthly payments throughout retirement, giving more financial stability and, in many cases, better long-term returns.

Because savings are invested together, CDC schemes can take a longer-term approach and invest in assets such as UK businesses and infrastructure projects, similar to the successful collective pension models already used in countries like Canada and Denmark.

These investments not only aim to grow members’ pensions but also help support the wider economy.

Under the new rules, CDC schemes will no longer be limited to one employer but can cover workers from multiple companies, making them accessible to millions more people.

| GETTY

The government is also consulting on a new ‘Retirement CDC’ option, which would let people with existing DC pensions move their savings into a CDC scheme when they retire.

This change would allow retirees to receive regular, inflation-adjusted income for life, without having to worry about managing their investments or how long their pension pot will last.

Minister for Pensions Torsten Bell is scheduled to address hundreds of major employers today, outlining CDC benefits and implementation steps. He stated: “Too often people approaching retirement are left navigating complex choices and shoulder risks they shouldn’t have to face alone.”

Mr Bell emphasised that collective pensions provide “a better deal, one where risks are shared, returns are smoothed and retirement incomes are stronger and paid for life”.

The initiative builds upon the Royal Mail Collective Pension Plan’s success, which currently serves more than 100,000 members.

| GETTY

Leading pension industry figures have endorsed the regulatory changes as transformative for British retirement provision. Zoe Alexander from Pensions UK highlighted the importance of balancing member protections with scheme simplicity and fairness.

David Brooks, Head of Policy at Broadstone, reacted to the Department for Work and Pensions’ announcement on Collective Defined Contribution (CDC) reforms, describing the move as a mixed but promising development.

He said: “CDC is a divisive solution but while it may not be perfect, it could certainly prove to be good enough.” Mr Brooks explained that the model satisfies the desire for “a return to some degree of paternalism” by offering an income for life, although without the full guarantees of traditional defined benefit schemes.

He acknowledged concerns over “whether it can provide better outcomes than individual defined contribution pensions or resolve accusations of inter-generational fairness,” but added that “there are enough upsides to see this as a positive step forward,” with savers able to enjoy a more secure income “without having to make complex financial decisions at crucial pinch points in their life.”

Mr Brooks concluded that the success of the reforms will depend on “whether this innovation can encourage enough employers to take the leap and participate.”