The Department of Work and Pension has confirmed it will consult with the industry on new types collective defined contribution schemes later this year.
This announcement, made by the pensions minister Guy Opperman, has been welcomed by many across the pensions industry.
Speaking at the Royal Society of Arts (RSA) CDC Forum Opperman said he was keen to capitalise on industry enthusiasm to extend CDC to other types of pension schemes.
Regulations come into force in August this year will provide for single and connected employer CDC, similar to those proposed by the Royal Mail. However many in the industry would like to offer multi-employer CDC schemes or master trusts, as well as at-retirement CDC options.
Opperman said: “CDC schemes have the potential to transform the UK pensions landscape and deliver better retirement outcomes for millions of pension savers.
“I firmly believe that we should capitalise on the enthusiasm that is building for extending CDC to other types of pension scheme, such as multi-employer schemes and master trusts.
“I am keen to move quickly, but we must get this right if it is to work. That is why I am calling on all those who are seeking to deliver the full benefits of CDC to work with us to help make this a reality.”
Hymans Roberston welcomed the opportunity to consult further on developing the CDC model. Partner Kathryn Fleming says: “It is good to see the announcement from the DWP today that it will be consulting later in the year on different approaches to accommodate new types of CDC schemes.
“While the recent TPR consultation showcased a range of measures to improve member communication, which we agreed with wholeheartedly, our analysis indicates that despite the fact that a compelling case can be made for CDC but there are still a number of areas of concern.
“The complex task of scheme design is important and different designs can make the benefits of CDC less clear-cut for some members. Furthermore, achieving good member outcomes during the early years of establishing a scheme is likely to be more challenging than for an established scheme in a steady state. There is also an issue about the costs and scale of investment required for the setting up of a scheme which meets the requirements of the draft code of practice.
“Finally, we believe the appeal of CDC is best suited for a niche group of employers and arrangements such as Master Trusts would be of more value and greater benefit to a wider audience.
“CDC has the scope to add value, and ultimately improve outcomes through greater education and better decision making. The ability to pool longevity and investments to deliver more income has strong appeal if introduced in tandem with a strong communications package.
“However, given the scale of investment and innovation already underway in DC Master Trusts, being patient and taking advantage of those improvements could be the most realistic and straightforward course of action.”
