Most people retiring today will have either been in a Defined Benefit (DB) or Defined Contribution (DC) pension. Some will have been in both. If they’ve been in DB plan, then they’ll get a one-off ‘lump sum’ payment and a fixed income for life. And if they’ve been in a Defined Contribution pension plan (and most in the UK will have by the time they retire) then they can use their ‘pot’ to buy an annuity and lock in an income for life – or cash out and hope it last.
Neither is perfect. One offers little flexibility. And the other puts too much on the individual.
That’s about to change. A third way is being offered that many believe has the potential to be the perfect mix of DB and DC. A way for millions of people to receive a bigger income during retirement. Some models suggest that retirement incomes could be up to 60% higher than traditional drawdown or annuity routes. I’m all in for that.
The new way is called Collective Defined Contribution (CDC).
Instead of people managing their own pot, savings go into a collective fund. It’s professionally managed, pooled across thousands of members with the aim of paying a regular income for life. That income can go up. It can go down. But the big sell is that members are not navigating retirement alone, and they’re not locked into a rate set on the day they happen to retire.
For people in the pensions and benefits world, this is worth paying close attention to. The Pension Regulator’s consultation on the ‘code of practice’ closed last month and it’s expected that from July – employers will be able to introduce CDC as an option.
This has the potential to be a significant shift in how millions of people could plan for and live in retirement. I use the words “potential” and “could” deliberately. Because I feel like I’ve seen this movie before.
I've been communicating pensions for 25 years. I've seen A-day and “simplification” of tax treatments, and watched auto-enrolment lean on apathy to get people saving without realising it. Pension freedoms. Small pots. Dashboards. Every time a shift to help more people save with greater confidence.
The irony is that the response to complexity is usually more complexity. More words. More caveats. More pages. Written by people who know the subject inside out, for people who've never thought about it once. The cold hand of legal compliance shapes the tone. The pension expert who loves the detail writes the content. And somewhere in the process the member (the human this is all supposed to help) gets completely lost.
No thought given to how it lands with someone scrolling through their phone on a lunch break, with no prior knowledge and no burning reason to care. We're fighting for attention and headspace. That fight starts with understanding what people already think, what they're worried about, and what would make them sit up. Not with what the scheme needs to say.
I get it. Accuracy matters. Compliance matters. But accurate and compliant doesn't mean people will read it, understand it, or do anything differently as a result.
Think about the person this is for. A factory worker in their mid-40s. Not disengaged because they're lazy or careless – but because pensions communication has never felt like it was written for them. And that starts by answering some basic but fundamental questions…
What is critical for this person to know today? What do they need to do now? What’s the benefit of doing something now vs. later? How do we demonstrate their money is being looked after carefully – but will go up and down?
Everything else is noise.
TPR's authorisation criteria for CDC schemes lists robust member communications as a condition of operating. Not a recommendation. A condition. The regulator is saying “if you can't do this well, you can't run it”. So, my ask to any employer or trustee thinking about CDC – don't leave communication to the end. Bring in your in-house or external communication experts early and let them do what they do best.
CDC has a real chance to bring people along. The architecture is being built carefully. But architecture doesn't change behaviour. Communication does. Not sending stuff and hoping people read it. Shifting how people see their future. Who they trust to manage their money. What they believe is possible. What they do as a result. That's the job. Let's make sure we do it.
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