A surge in interest in “Dutch-style” pension schemes is sweeping through UK employers, as more than 200 companies express a desire to join a new multi-employer collective defined contribution (CDC) scheme. This scheme, which promises to significantly boost retirement incomes for workers, is set to be launched by pensions administrator TPT, marking a major shift in the UK pension landscape.
TPT announced on May 8 that it is moving ahead with plans to establish the UK’s first multi-employer CDC scheme. The goal is to secure regulatory approval by 2026, with contributions expected to begin in the first half of 2027. CDC schemes, which are widely used in the Netherlands, are viewed as a middle ground between traditional, but costly, defined benefit (DB) pensions and more common defined contribution (DC) schemes.
According to TPT, CDC schemes could offer pensions 20% to 50% larger than those from standard DC schemes, all while maintaining the same contribution levels and risk profile. Andy O’Regan, chief client strategy officer at TPT, revealed that more than 200 employers have shown interest in joining the scheme, representing a potential membership far beyond the 3,000-6,000 individuals required for viability.
“We’re confident we can hit the critical mass needed,” O’Regan said, adding that TPT is also exploring single-employer CDC schemes for large corporations. This growing enthusiasm for CDC schemes follows the example set by Royal Mail, which launched the UK’s first single-employer CDC scheme in 2023. The move was pivotal in resolving a longstanding industrial dispute and has since been hailed as a breakthrough in the pensions industry.
However, while CDCs are praised as a significant innovation, some critics, including independent consultant John Ralfe, warn about potential flaws in the model, particularly regarding the absence of individual guarantees. Unlike traditional DC schemes, where individual funds are de-risked as workers approach retirement, CDC schemes pool assets and share risk across generations. This approach allows them to remain invested in higher-risk assets, such as equities, for longer, theoretically generating stronger long-term returns. However, members only receive “target pensions” rather than guaranteed incomes.
The UK government is expected to lay down formal regulations for CDC schemes this September. Pensions Minister Torsten Bell welcomed TPT’s initiative, calling the schemes an important addition to the UK pensions landscape.
TPT, based in Leeds, administers £11.6 billion in assets and serves around 2,000 employers and 470,000 members across various sectors, including housing associations and charities. The Church of England is also reportedly considering launching its own CDC scheme for its network of organizations.
As the debate over pension adequacy intensifies in the UK, CDC schemes may offer an attractive solution for employers seeking to enhance retirement outcomes without bearing the full financial burden of traditional DB guarantees.
