What are Collective Pensions?

FUTURE PROOF: A new pensions bill was announced in the Queen's Speech to introduce Collective Defined Contribution pension schemes. But what are CDC schemes?

Emma Wall 5 June, 2014 | 2:54PM

Pension schemes fall broadly into two categories – defined benefit schemes and defined contribution schemes. Defined benefit pension schemes promise an income in retirement based on your tenure at an employer and the wage you earn. Final Salary Schemes – often called referred to as “gold-plated pensions” are a type of defined benefit plan.

With a defined contribution (or DC) schemes your retirement pot is based on contributions from the scheme member, with additions from their employer in most cases, and stock market returns over your membership tenure. Auto-enrolment will result in around 10 million people being enrolled into DC schemes by 2018.

Currently, DC scheme members’ outcomes are based purely on their own ring-fenced portfolio within a larger scheme. If you contribute £100 a month, and your employer contributes £100 a month, your £200 will most likely be invested into a blend of assets which changes as you age; becoming more cautiously biased as you approach retirement.

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About Author

Emma Wall  is former Senior International Editor for Morningstar

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