There is industry nervousness around being a first mover in Retirement CDC, especially before official definitions of exactly how much a retirement income is have been established, according to Johanna Clarke, a partner specialising in pensions law at the firm CMS.
The comments were made at a Society of Pension Professionals event discussing R-CDC and its potential progress within the industry.
Clarke says: “I don’t know whether (attitudes towards R-CDC) sees it so much as a risk as nervousness. The pension default solution that trustees must select needs to provide a retirement income, but we don’t yet have a definition of that.
“Of course, as lawyers, we will pour over the definition of due course, and that will feed into what trustees are then looking at and considering in the market.”
R-CDC is an arrangement where members pool their savings at retirement into a collective fund to receive a lifelong income, rather than managing an individual pot. It is intended to provide the stable income of a DB plan with the fixed costs for employers of a DC plan.
Following a consultation that took place late last year, the UK Government has stated that draft R-CDC regulations will be published this year. The expectation is that these schemes will be rolled out in 2027/2028, following final regulations and TPR authorisation.
At the SPP event, Stewart Patterson, senior director at LifeSight, says: “The challenge from the Pensions Schemes Bill is this requirement to provide an income for life, which means the R-CDC option needs to be somewhat irreversible. That makes us feel a bit uncomfortable, but there’s ways we can get over that with clear signposting and have easy off ramps for members from whom it isn’t right for to get out.”
LifeSight is the first master trust provider to confirm it will launch a R-CDC solution as soon as the UK regulatory framework allows. The £30bn DC master trust is sponsored by WTW, which helped develop the first CDC for Royal Mail.