Fifth of businesses are interested in CDC schemes – DB & Derisking

ACA’s 2021 pension trends survey, which received 212 responses from employers covering 400 schemes, found 21 per cent expressed interest in exploring CDC for their own companies, while more than half (54 per cent) backed extending CDC beyond the Royal Mail scheme, which is expected to launch next year.

Support for expanding the reach of these type of schemes is up 6 points from the same time last year, while the 21 per cent who would consider introducing CDC to their own businesses has increased from 12 per cent a year ago. 

The latter number rises to 25 per cent if multi-employer CDC becomes available, and a quarter would consider a CDC master trust for accumulation and decumulation, ACA found.

The findings come as contributions to traditional defined contribution schemes have “flatlined” at a level that is insufficient to provide for a comfortable income in retirement. Defined benefit schemes are also on the decline, with 5 per cent of respondents saying they had taken action within the past two years to reduce or close their schemes to future accrual, and another 5 per cent proceeding to buyouts.

Patrick Bloomfield, ACA chair, 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,” he continued. 

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

Chintan Gandhi, chair of the ACA PR committee and the ACA’s CDC spokesperson, added: “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.

“In addition to the strong support shown in favour of single-employer and multi-employer/industry-wide CDC schemes, perhaps most exciting is the growing support for CDC in the decumulation phase, where employers are clearly beginning to consider the possibility of an option for their employees to buy a CDC pension at retirement,” he continued.

“This would be best delivered through commercial master trusts and, given previous analyses from across the industry have 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.”