Almost half of all DC schemes (41 per cent) said they are ‘very likely’ to introduce a Collective Defined Contribution (CDC) pension scheme – or a risk sharing alternative – according to the latest research conducted by Hymans Robertson.
The firm’s analysis shows that CDC is clearly appealing to many employers and providers. Nearly a third (29 per cent) of those surveyed said ‘protection against members exhausting their pension pot in retirement’ was the key attraction of a CDC scheme.
Meanwhile a quarter (25 per cent) said they were attracted to the fact that CDC schemes should provide higher pensions for members from the same contribution amount. Another big advantage of CDC is seen to be the reduced burden of decision making for members at, and throughout, retirement, cited by 23 per cent of respondents — which contrasts with the current labyrinth of options in DC schemes.
Nonetheless, some concerns remain. The survey, among pension decision makers at 500 firms which included CFOs, financial directors, pension managers, HR professionals and directors need a number of current concerns. The chief concern, cited by 30 per cent of respondents was that legislative change could increase employer risk, and member dissatisfaction with the pension amount received at retirement.
This survey comes after a pension manager at recent Corporate Adviser conference, Associated British Foods group pensions director Colin Hateley told delegates that it would be remiss of employers not to consider CDC as a pensions option.
Despite the concerns to be expected with large-scale innovation like CDC, risk sharing schemes retain what Hymans Robertson describes as “a certain irresistible pull”. It points out that of those companies polled, none said there was ‘nothing appealing’ about CDC schemes.
Hymans Robertson head of DC markets Paul Waters says: “Our research came back with surprising results in the degree of positivity towards CDC from employers. If borne out in practice this would be a massive shift in UK retirement provision, and we anticipate the growth of CDC to be more measured.
“Nonetheless it illuminates the rising popularity of DC risk sharing in the industry, with attention growing after the Royal Mail unveiled the UK’s first CDC scheme in October and the multi-employer CDC draft regulations were published.
“CDC, or risk sharing alternatives, allow companies to offer pensions that give members the potential of higher retirement incomes, helping address the UK’s adequacy challenge and providing members with more security in retirement.
“As well as underlining how likeable the ‘new kid on the block’ is, this research also demonstrates the work still to be done in DC risk sharing options. CDC will not be right for all funds, and while the enthusiasm is evident, we also need other DC risk sharing designs to meet the needs of different schemes and members.
“Despite this it’s evident that DC risk sharing seems to be one of the most popular and practical answers to DC inadequacy. As likeable as the fresh face of CDC is, however, we must recognise there is a lot of work to be done before individuals’ financial wellbeing in retirement can be tackled by CDC on a wholesale basis.”