Shriti Jadav, senior consulting actuary, WTW, said: “WTW welcomes the publication of DWP’s consultation today seeking views on broadening Collective Defined Contribution (CDC) provision beyond single or connected employer schemes to accommodate multi-employer schemes. We see this as a significant step towards meeting the Government’s ambition of making CDC more widely available through facilitating multi-employer schemes, master trusts and decumulation-only CDC.
“While current legislation allows single employers to launch CDC schemes, it restricts this design to workplaces where the employer is big enough and enthusiastic enough to set up its own scheme. Permitting multi-employer schemes and Master Trusts to provide CDC pensions to unconnected employers will go a long way to removing this scale hurdle.
“The consultation focuses on whole-life multi-employer CDC schemes to extend CDC provision and notes there are additional factors to consider with decumulation-only schemes such as around the pricing mechanism. We hope the DWP maintains progress on the decumulation-only approach alongside the whole-life multi-employer model, so that people who have saved in conventional DC schemes have the option to remove the risk of outliving their money without having to lock into the low-risk, low-return investment strategies that underpin annuities. Polling from WTW’s recent Pensions and Savings Conference showed that 93% of attendees felt that a CDC decumulation option would be of interest to DC retirees, and 72% would consider facilitating that through a link to an external offering such as a master trust.
“The cost of living crisis underlines the challenges of improving DC pensions through higher contributions alone, and product innovation can help make the most of those hard-earned contributions.”
Responding to the new CDC consultation that has been published today, Steven Taylor, LCP Partner, said: “Today’s CDC consultation follows detailed technical discussion with industry over the past year around how to best make CDCs work for multi-employer schemes.
“It is hoped that this will now fast-forward the emergence of a new brand of pension that can provide today’s employees with better expected outcomes than traditional defined contribution schemes. In today’s climate the ability of CDC schemes to target full inflation protection could also be a key selling point for members, whilst employers will be attracted by immunisation from future deficits.
“Squaring this circle to ensure good member outcomes means CDC schemes need to invest heavily in equities and other growth areas. This aligns will with the Government’s wider objectives, but also makes investment strategy a key focus for scheme designs. There is much to admire here and it is hoped that over coming months the consultation progresses smoothly.
“Central to this will be evolving thinking around “decumulation only” models. Once operational, these schemes could be very attractive to the current generation of private sector savers who have only ever known DC schemes, especially if , as hoped, they can offer significantly higher starting pensions than traditional annuities.“
Extending Opportunities for Collective Defined Contribution Pension Schemes consultation
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