LCP has welcomed the new Collective Defined Contribution (CDC) regulations as long as they allow the Royal Mail scheme to be set up quickly.
LCP partner Steve Taylor has warned that the government will need to be flexible to ensure that the framework isn’t just for the Royal Mail scheme.
According to Taylor, three issues must be addressed to ensure that CDCs can be used for more schemes. Currently, there are few options for sponsors who want to experiment with different benefit structures. Sponsors should be able to devise more creative contribution approaches that are more equitable for younger people and reduce intergenerational cross-subsidies.
Taylor says that CDC schemes must also be more easily implementable for auto-enrolment purposes, allowing for the flexibility to accrue benefits at more than one rate. This will also demonstrate to sponsors that CDCs can be used to provide affordable benefits to the entire workforce. He adds that the criteria for multi-employer schemes must be refined. It must be made easier for groups of companies that are currently participating in group pension arrangements to switch to CDC if they so desire.
Taylor says: “It’s great that the government has now produced its initial framework for CDC. However, the proof of the pudding will now be not only in the successful emergence of the first scheme but also in whether this helps to spur wider adoption. Given the lead times for groups to make such significant decisions, other companies will want the government to now quickly pivot to meeting emerging demand from other organisations.
