Chintan Gandhi, partner and head of Collective DC at Aon in the UK, said: “All those involved in helping the Royal Mail Collective Pension Plan (RMCPP) reach this milestone really deserve congratulations. In my view, CDC is the greatest innovation we have seen in UK pensions in a generation – and it’s inspiring to see what the industry can achieve when it works together towards a common goal.
“We wholeheartedly agree with Laura Trott’s comments that the authorisation of the first CDC scheme, the RMCPP, is a landmark moment for UK pensions, and that this is just the beginning.”
Madalena Cain, associate partner at Aon, said: “In efforts that stretch back over 10 years, Aon has done considerable work in preparing the way for CDC and in supporting employers and providers in developing their CDC vision. It’s clear to us that more CDC schemes will be established in future.
“We strongly support the DWP’s plans to legislate for wider forms of CDC schemes to exist, in particular to introduce legislation covering both whole-life multi-employer CDC schemes and decumulation-only CDC solutions. This will bring CDC to the masses, and we urge the government to commit to ensuring the regulations are in place for these wider forms of CDC by the end of 2024.”
Results from polls conducted at an Aon CDC webinar on 2 March, revealed that:
10 percent of employers are already pursuing CDC, with a further 14 percent considering CDC as part of their next benefits review;
75 percent of attendees believe whole-life CDC is of most interest for their circumstances, while 25 percent believe decumulation-only CDC will be of most interest;
73 percent of attendees believe CDC will be a valuable option alongside drawdown at retirement, with a further 18 percent predicting CDC will replace drawdown as the primary decumulation option at retirement.
Claire Altman, Managing Director of Individual Retirement at Standard Life, part of Phoenix Group, said:
“The industry is thinking carefully about how we can deliver better outcomes for savers and CDCs could prove to be a useful part of the toolkit. For those employers who still offer defined benefit schemes, CDCs could provide a half-way house between defined benefit and defined contribution arrangements, particularly as it reduces costs and risk for the employer.
“For employees, CDCs can potentially offer more certainty of outcome than that provided through defined contribution schemes. However, it’s important to ensure CDC schemes will be sustainable and that proper protections are in place if things don’t go as expected, given the expectations CDC schemes could raise with savers.
“It’s important to think about CDC in the context of the wider range of options and what these can achieve. There is a lot happening in the retirement space, and while it is great that CDC will be an option, we shouldn’t forget that other solutions are available to savers. In particular, the end of the era of low interest rates has made annuities a more attractive option for those looking to secure a guaranteed income and this is a welcome development, since over three quarters (78%) of people tell us they want income certainty in retirement. Furthermore, thinking has moved on in favour of a more blended approach that allows people to achieve the best of an annuity and drawdown. We expect to see significant innovation and product development over the next couple of years, and welcome CDC being part of the pensions saving toolkit.”
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