Age-related contributions a potential ‘game changer’ for CDC

Allowing the use of age-related contributions in collective defined contribution (CDC) schemes could be a “game changer” in making CDC more appealing to a wider range of schemes and ensuring fairness for younger savers, according to LCP.

Pensions Minister, Guy Opperman, yesterday (28 March) signaled his intent to hold a consultation on potential options to extend the scope of CDC provisions, calling on the industry for its insight to help make this a reality.

In response to this, LCP partner, Steven Taylor, warned that as age-related contributions are not allowed, younger employees could be disadvantaged.

In addition to this, he noted that requirements on when schemes need to set up new sections are currently very strict, suggesting that this is potentially a barrier to building up the scale that is necessary.

He continued: “It‘s been a concern that the scheme designs available are currently very restrictive and linked heavily to the Royal Mail design. This means regulations may not currently be flexible enough for schemes that are run in a different way.

“This is the first time that the pensions minister has explicitly asked for help to make sure that the structure is user friendly to a more schemes.

“The regulations now in place provide key groundwork for multi-employer CDC schemes, but some adjustments are likely to be needed to prove attractive to large employer groups and their employees.

“Allowing schemes to make age related contributions would be a game changer and will make it fairer for younger people. We believe there are ways that this can be achieved without introducing new risks to schemes.”