Matthew Arends, Head of UK Retirement Policy for Aon, said: “We see the DWP’s response to the CDC consultation as an endorsement of the broader concept of Collective DC benefits for the UK - something we have been advocates of for many years. Much of what we see in the response confirms the direction of travel set out in the consultation itself.
“However, one thing that surprised us is the lack of additional controls over the setting of the actuarial assumptions to value the CDC target benefits – the DWP indicates that the Institute of Actuaries’ existing Work Review requirements will apply.”
Matthew Arends continued: “This could mean that there will be no external scrutiny of actuarial assumptions for CDC schemes until they are published after the actuarial valuation is complete. As the actuarial assumptions – and, in particular, the discount rate – will directly determine the pace of pay outs to members, we were expecting that more explicit, external review and ratification of the assumption setting would be required. This would increase public confidence in CDC schemes.”
Kevin Wesbroom, senior partner at Aon, said: “Overall, it is very pleasing to see so many responses to the DWP that were supportive of CDC, and that many were advocating multi-employer and decumulation-only CDC solutions. These are both things that we continue to support, since they address gaps in the current pensions architecture.
“Two questions that will be answered in separate consultations will be how the taxation of CDC benefits will be managed, and how CDC schemes will qualify for auto-enrolment. Both are key aspects of how CDC schemes will operate and we are confident that sensible outcomes will be offered.”
Kevin Wesbroom continued: “The consultation makes it clear – as we have argued – that clear and accurate communication of CDC benefits to actual and prospective members will be a real challenge. The pensions industry is regularly accused of failing to communicate pensions effectively – so the communication of CDC schemes needs to be an exemplar for the whole industry.”
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