The government recently approved plans to make CDC pensions more widely available. The findings from those polled suggest that although the majority offer an individual Defined Contribution (DC) arrangement for their employees, two thirds (66%) would prefer to offer a pension providing a regular income throughout retirement, rather than a pensions “pot” that can be accessed flexibly.
The organisations expecting to provide CDC by 2025 currently have a range of pension arrangements in place, Defined Benefit (DB), DC or a mixture of the two. This indicates that initial appetite for CDC could come from employers with a variety of current arrangements - not just those with a DB arrangement and in a similar position to Royal Mail (who have committed to provide CDC when legislated for), but also those who already have some form of DC arrangement in place for at least a significant proportion of employees.
Around a third of participants (34%) thought that their Scheme members would struggle to understand the nature and variability of CDC pensions. This was a key theme in the Government’s response which it aims to address through a bespoke authorisation regime featuring communications strategy as a quality criteria, who said that schemes will “be required to have a robust member communications strategy”.
The Government is positive about a second round of legislation to enable a variety of different CDC structures and designs such as master trusts or other multi-employer solutions, which would make CDC much more accessible for employers. Over half the participants in the poll (58%) thought master trusts would be the most suitable form of delivery for their organisation.
Simon Eagle, Senior Director in Willis Towers Watson’s Retirement business said: “New things usually take time to catch on. While only a minority of organisations are expecting to be part of the first wave of Collective Defined Contribution benefit provision, our data shows that most organisations would like to provide their employees with a regular income in retirement rather than a flexible pensions pot. This suggests there may be further appetite for CDC provision in the longer term.”
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