WTW’s response highlights that it sees CDC as a valuable and innovative addition to the UK pensions landscape. CDC has the potential to provide millions of individuals and their employers with a cost-effective income for life that is managed for them by trustees, particularly as a decumulation-only retirement income offering.
WTW supports the DWP’s aims for expanding CDC to allow multi-employer and master trust CDC and greater design flexibility, subject to there being sufficient protections to ensure robust designs and to support sensible employer and member decision making.
Shriti Jadav, CDC Director at WTW, said: “The consultation covers two types of CDC schemes - whole-life and decumulation-only.
From engagement with our clients and the wider industry we believe there is particular interest and greater potential to reach more individuals through decumulation-only CDC, as a new option at retirement for defined contribution (DC) retirees.
"This would complement DC in accumulation, and once offered through a master trust, would provide employers and other trusts with access to the benefits of CDC – letting individuals choose an income for life without locking into low returns by purchasing an annuity.
“Polling at WTW’s annual pensions and savings conference in November 2022 showed that 93% of attendees thought decumulation-only CDC would be of interest to DC retirees, and 79% would want to facilitate it for their scheme members – 72% through linking up with a CDC master trust and the remaining 7% through their own scheme.
“Whole-life CDC is closer to the initial CDC regime in force and so is perhaps easier to introduce - we would like to see the Government taking forward regulations that enable new designs for both whole-life and decumulation-only CDC, in order to maximise access to CDC.
“We agree with DWP that it will be important to protect members within a decumulation-only CDC environment, since each member will need to make their own decision at retirement as to whether to purchase CDC income. As under the current regime, we believe this protection can be achieved through a combination of trustee governance and member communication requirements, plus the incorporation of CDC into existing retirement guidance for individuals available from Pension Wise. The Pensions Regulator’s ongoing supervisory role for CDC schemes will also be important.
“The expansion of CDC introduces some new considerations to work through which, from our extensive work on CDC, we are confident can be achieved.”
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