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A survey conducted by Hymans Robertson found that 41% of DC schemes said they were interested in rolling out a collective DC (CDC) pension scheme or similar kind of risk-sharing arrangement.
The government’s consultation on CDC rules closed this week, with industry commentators broadly positive on the plans. Some have called for elements of the planned legislation to be refined to make them less “onerous” and more suitable for non-profit providers.
Royal Mail introduced its new CDC pension scheme earlier this year, with the Church of England Pensions Board and TPT Retirement Solutions also expressing interest in setting up their own similar pension plans.
Hymans Robertson’s survey found that almost a third of respondents said pooling longevity risk – and so reducing the risk of members running out of money in retirement – is an “appealing feature” of some forms of CDC.
A quarter (25%) cited the potential for higher investment returns for no additional contribution cost, while a similar proportion (23%) said a CDC pension scheme would reduce the complexity of decision-making at retirement.
No respondents said there was “nothing appealing” about the CDC model, whihc Hymans Robertson said indicated that “companies can comprehensively see the appeal of CDC or risk-sharing schemes”.
However, some of the corporate representatives polled voiced concern about increasing risk to sponsoring employers and the potential for members being unsatisfied with the amount available to them at retirement.
Paul Waters, head of DC markets at Hymans Robertson, said he was surprised by the level of positivity towards the new pension scheme model, adding that it would mark “a massive shift in UK retirement provision”.
He said that he expected the uptake of CDC pension schemes to be “more measured” than the research suggested.
“CDC, or risk sharing alternatives, allow companies to offer pensions that give members the potential of higher retirement incomes, helping address the UK’s adequacy challenge and providing members with more security in retirement,” he continued.
“As well as underlining how likeable the ‘new kid on the block’ is, this research also demonstrates the work still to be done in DC risk-sharing options.
“CDC will not be right for all funds, and while the enthusiasm is evident, we also need other DC risk-sharing designs to meet the needs of different schemes and members.”
Waters emphasised that there was still “a lot of work to be done before individuals’ financial wellbeing in retirement can be tackled by CDC on a wholesale basis”.
Further reading
Can CDC help fix a ‘broken’ DC system? (9 October 2024)
CDC legislation planned for next year, says pensions minister (8 November 2024)
Simplify CDC rules to ensure success, says pensions industry (20 November 2024)
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