CDC must be made “attractive and accessible through a broad range of designs” from multiple providers as the market matures, according to Hymans Robertson.
The paper, CDC: The Pensions Industry Perspective, is based on a round table which included industry bodies, unions, DC schemes, providers, and trustees, exploring the challenges facing the CDC market and how its design can evolve to reach its optimal potential.
According to the paper, a multi-provider approach will help CDC achieve better outcomes. It suggests that a non-commercial, multi-employer system could offer CDC in the UK security and growth, even though single employer or sector-based CDC is easier.
The paper highlights how the development of CDC schemes faces several obstacles, such as the need for scale to move beyond single employers, flexibility in legislation to promote creativity and seamless transfers from DC schemes, and a well-defined exit strategy for schemes that are unable to continue to reassure early adopters.
Hymans Robertson head of DC markets Paul Waters says: “It is great to see that the momentum is powering behind the development of CDC Schemes. The launch of the Royal Mail Scheme was a key milestone and the consultation on multi-employer CDC scheme has provided a clear indication that the Government will continue to support the growth of CDC. Yet, this must be done with eyes open to the challenges that need to be addressed, a willingness to embrace the benefits of a broad range of designs and encouragement for the support of multiple providers. If done properly, it will generate innovation in the market and ultimately provide better outcomes for members – the true goal.
“As the market develops and matures there’s going to be value in having a range of different CDC schemes. In our roundtable discussion there was a divergence of views on what the five year picture will look like. We believe the industry will benefit from a non-commercial take all-type arrangement to provide access for all members and an impetus for the market’s growth. In reality, in 10 years we could have a handful of large single employer CDC schemes, like Royal Mail, and a similar number of sector-based schemes. We also expect to see a number of commercial multi-employer schemes too.
“CDC is still an unfamiliar concept to most people. We need to help people understand and get comfortable with it. As an industry, through CDC we can deliver substantially better retirement benefits that work well for the majority of people. If delivered consciously and carefully it could improve the social contract between generations. It is important to keep at the heart of the CDC conversation the retirement adequacy challenge that CDC can help to address.”