The majority of DC scheme members, 80 per cent, would give up flexibility for higher income, and 78 per cent would do so for a guaranteed income, according to Hymans Robertson.
According to the research, nearly half or 48 per cent of savers favour CDC for protection against running out of money, while 46 per cent are attracted by the potential for a higher overall pension.
The research also found that one-third would accept a slight drop in income for a greater overall pension, while another-third would accept a smaller reduction for more income in most years. Just 12 per cent would object to any cut, and 62 per cent would tolerate different generations receiving varying amounts—as long as their own pension was more than that of other schemes.
Members also emphasised that Government support is key to the success of CDC with 63 per cent of people saying they would find it more appealing if the Government promoted it, and 60 per cent would feel more positive if a Government-backed provider managed it.
Hymans Robertson head of DC markets Paul Waters says: “Our research shows that there’s a wide appetite for CDC amongst scheme members. A higher, secure retirement income from the same pension contribution is certainly a compelling draw. The Government and the industry must listen to these results and use them to catalyse developments in rolling out CDC. Risk sharing and collective saving, such as CDC, will be crucial tools in the ongoing battle to improve the adequacy of pensions.
“It’s also interesting to see that, if the Government plays a role in the development of CDC, it will help gain the confidence of savers. The consultation currently under review on multi-employer CDC was an important sign that the Government will continue to support the growth of CDC, but it will be good to see further commitment. Communicating the benefits of CDC will be a crucial step in starting to improve adequacy and something the new Pensions Minister should consider. I hope that he cuts through the noise and throws his weight behind CDC – it could be the cornerstone of improving the quality of retirement for countless people across the UK.
“We know that CDC isn’t a one-way bet – the benefits come with trade-offs and it’s important these are well understood. It’s helpful to see that savers are willing to embrace the concept of CDC – even with some of these trade-offs. People were willing to accept the occasional year of lower retirement income for a higher overall pension and were generally accepting of generational fluctuation in retirement income levels. Getting the communication right to ensure this is borne out in practice will be key. But it’s loud and clear from the savers questioned in this research, that there’s a willingness to support this innovative pension scheme design if it delivers a higher, secure pension income in retirement than DC.”
