Customers helped

What is a collective pension scheme?

Updated 01 December 2022

3min read

Nick Green
Financial Journalist

The Queen’s Speech has outlined further reforms to the government’s pensions shakeup. In this latest announcement, workers will be able to contribute to Dutch-style collective pensions. But what is a collective defined contribution (CDC) pension scheme?


It’s a bit of a mouthful: collective defined contribution workplace pension scheme. Phew! What is it? And why is the government keen on them?

“Instead of workers paying into individual pots, both workers and employers pay their contributions into one giant pot with lots of other people, which bubbles away with all this lovely extra cash

What is a defined contribution scheme?

Firstly, let’s explain the two types of schemes: defined contributions (DC) and defined benefits (DB). Defined benefit schemes are now rare – with this scheme, you know how much money you’ll receive when you retire. With defined contribution schemes, you only know how much you pay in every month, but not how much money you’ll have when you retire. This is because the money is then invested in the stockmarket, which is subject to fluctuations. So you know what you’re putting in, but not what you’re getting out.

What is a collective defined contribution (CDC) scheme?

This is the latest idea from the government. Instead of workers paying into individual pots, both workers and employers pay their contributions into one giant pot with lots of other people, which bubbles away with all this lovely extra cash. This money is then invested in stocks and shares.

Then, when you reach retirement, the provider running the scheme will work out how much the plan will pay out every month for that individual. Based on their age, how much they’ve contributed up until their retirement and how well the invested pots have performed on the stockmarket.

Why is the government keen on CDCs?

Because it means that instead of a small fund, you’re investing in a ‘mega fund’, with all the benefits that implies. As an added bonus, it also spreads the risk and lowers the cost. Rather than individual pension pots losing money, CDCs spread the big pot of cash over a broader spectrum of investments, which have lower running costs. And when times are tricky (as in a recession), less people will lose out.

Great! Where do I sign up?

Hold your horses. It’s not necessarily the right scheme for everyone. And because the funds are shared by people of all ages and walks of life, different CDC members may have different priorities. Plus, you’re not guaranteed a great run of financial success just because there are more people in the scheme.

More choice, greater responsibility

This new wealth of retirement choices is fantastic, but you need to make sure that the choices you make are right for your individual circumstances. To make sure you’re making the right choice for your situation speak to a whole of market financial adviser. You can find general professional advisers, as well as those who will specialise in a particular area of retirement planning. Enter your postcode and qualification level, right down to size of investment pot or pension value.

A simple chat with an adviser with the help of our ‘find an adviser’ checklist can be the first step in identifying the ‘right’ financial adviser for you. They can help you make the right choices on potentially one of the most important decisions of your life.

Let us match you to your
perfect financial adviser

Find out more

About the author
Nick Green is a financial journalist writing for Unbiased.co.uk, the site that has helped over 10 million people find financial, business and legal advice. Nick has been writing professionally on money and business topics for over 15 years, and has previously written for leading accountancy firms PKF and BDO.