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Employer support for CDC on the rise

Interest in collective defined contribution (CDC) pension schemes is growing, with 58 per cent of employers supporting a CDC option being available, a 6 percentage point increase on 2020, according to research from the Association of Consulting Actuaries (ACA).

The ACA’s 2021 Pension trends survey also found that 54 per cent of employers supported the extension of CDC to allow industry-wide and multi-employer CDC schemes, representing an 8 percentage point increase on 2020.

In addition to this, the number of employers who would consider introducing a CDC scheme into their own business nearly doubled, increasing from 12 per cent in 2020 to 21 per cent in 2021,rising further to 25 per cent if multi-employer CDC schemes become available.

There was also interest for CDC master trusts, with 25 per cent of employers confirming that they would consider this vehicle for accumulation and decumulation.

The growing interest in CDC schemes was found alongside evidence that contributions into traditional DC schemes had “flat-lined” at levels that would fall short of providing comfortable retirement incomes.

In addition to this, the survey results suggested that defined benefit pension schemes are becoming “increasingly scarce”, with 5 per cent of respondents taking action in the last 2 years to reduce or close to accrual and a further 5 per cent buying-out their schemes.

Commenting on the findings, ACA chair, Patrick Bloomfield, said: “The level of business interest in CDC as a new form of pension saving is very exciting.

“These findings back up the experience of ACA members, who are working with many businesses looking into offering their employees a CDC scheme. It underscores the opportunity to make CDC a core part of the UK’s future pensions landscape.

“It’s wonderful to see the Royal Mail CDC scheme coming to fruition. The ACA encourages the government and The Pensions Regulator to build on this momentum and business enthusiasm.

“CDC has the potential to supercharge other government policy initiatives, like increasing pension scheme investment in patient capital, illiquids and infrastructure.”

Adding to this, ACA CDC spokesperson and chair of the ACA PR committee, Chintan Gandhi, commented: “While understanding of CDC has developed over the past few years, it’s really encouraging to see how fast real acceptance of the concept is growing.

“That reflects the increasing awareness of its value in providing an income for life in retirement on a fixed cost basis, and as a means of saving which doesn’t involve having to make complex financial and investment decisions.”

Gandhi also suggested that the growing support for CDC in the decumulation phase was “most exciting”, suggesting that employers are “clearly beginning to consider the possibility of an option for their employees to buy a CDC pension at retirement”.

“This would be best delivered through commercial master trusts and, given previous analyses from across the industry has revealed that CDC may be able to deliver around 30 per cent better outcomes compared with individual DC where annuities are used to purchase lifetime income in retirement, this would pave the way for millions of savers to access a more cost-effective income for life in retirement,” he added.

Findings previously published from the ACA’s 2021 Pension trends survey also suggested that the pensions industry could be facing a ‘widescale capacity crunch’ amid growing regulation, as well as revealing employers’ ‘wish lists’ for the upcoming DB funding code consultation.


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