The survey of 99 UK pension consultants, trustees, administrators, actuarial, legal and investment professionals, was launched in response to the publication of the Work & Pensions Commons Select Committee’s inquiry into “defined ambition” pension schemes.
Over half (53%) of those surveyed thought that the introduction of CDC schemes would lead to some improvements to the standard of workplace pensions in the UK. Commenting on the major advantages of CDC schemes, 43% of respondents said that this type of arrangement would mean that members are free of making investment decisions. 36% said that it would lead to higher pensioner incomes and 31% said that it would mean members would be largely unaffected by costs and charges.
However, almost two-thirds of those polled (65%) saw a lack of understanding as the highest concern over the introduction of CDCs.
This was closely followed by the fact that it could leave schemes vulnerable to funding problems in the manner of DB schemes (53%) and that benefits are not guaranteed (49%). Intergenerational cross-subsidies was also seen as a disadvantage (47%) with members concerned that the contributions of younger members could be used to provide benefits for retirees rather than secure deferred benefits for younger members.
When considering how CDC schemes might be established in the UK to achieve effective economies of scale, 59% of members thought that by creating industry-wide or regionally-based schemes, would be the most viable option. This was closely followed by converting NEST to a CDC arrangement (50%), given master trusts seem to have a more natural fit with CDCs.
Robert Branagh, President of the Pensions Management Institute, said: “Our results show that while there is an appetite for CDC in the UK, it is not seen as a panacea for stressed DB schemes. Ultimately, whether CDC-style arrangements could work would be a question of political will. Supporters focus on the success of the model in other countries and argue that the system combines the more desirable characteristics of traditional DB and DC arrangements. Opponents are concerned about aspects of inter-generational risk sharing in particular.
“The Government must take care in assessing the evidence and distinguish properly between genuinely informed comment and simple vested commercial interest. In the context of the wider pension scheme sustainability and development debate, it is certainly one that has provoked a certain amount of animated discussion and will no doubt continue to do so this year.”
• However, 53% of respondents think that the introduction of CDC arrangements would improve standards of workplace pension provision
• 52% believe employers would like to see the introduction of CDC
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