Regulations facilitating collective defined contribution (CDC) schemes need to be made more flexible to make them fairer to younger people and reduce intergenerational cross-subsidies warns LCP.
As the Government’s consultation on the rules around CDC closes next Tuesday, LCP is urging the Government to iron out the creases to ensure that plans can be seen as a workable and effective option for a wider range of scheme sponsors.
LCP’s consultation response has warned the regulations need to be more flexible as they have been drafted with the Royal Mail’s scheme in mind. This means there are currently limited options for sponsors who may wish to explore different benefit structures.
Sponsors should be able to design more innovative contribution approaches that are fairer for younger people and reduce intergenerational cross-subsidies, says the consultancy.
It argues that CDC schemes also need to be more easily workable for auto enrolment purposes by allowing flexibility to build up benefits at more than one rate. This will also help to highlight to sponsors that CDC’s can be used to provide affordable benefits across the whole workforce.
The criteria for multi-employer schemes needs to be evolved, adds LCP. It needs to be made easier for groups of companies currently participating in group pension arrangements to have the option to move to CDC should they want to.
LCP Partner Steven Taylor commented: “It’s great news to see progress in the design of CDC schemes but there are creases to iron out to make them more accessible and really be the ‘third way’ between DB and DC schemes.
“They need to be far more flexible as the regulations as they stand are primarily based on the Royal Mail scheme. Many company schemes won’t fit neatly into this mould and this will hinder take-up of CDC’s. There also needs to be more thought around how the scheme design can be made fairer across the generations and ensure that younger members aren’t subsidising older members.”
