Trustees need to prepare for the governance challenges around CDC according to Zedra.
It adds that the introduction of CDC arrangements could change the nature of trustee decision-making, with governance and decision-making processes requiring as much consideration as scheme design.
Although multi-employer CDCs are yet to launch in the market, Zedra says trustees should begin preparing now for how these new arrangements – which are typically seen as a potential third way between DB and DC schemes – could directly influence members’ benefits.
Zedra client director Sam Burden says: “Much of the conversation around CDC has focused on its potential to bridge the gap between DB and DC pensions, and rightly so. However, an equally important consideration is how CDC changes the role of trustees and the decisions they will be required to make.
“Unlike many traditional pension decisions, CDC trustees will be required to make ongoing judgements that balance competing priorities, including different forms of risk, fairness between generations and the long-term sustainability of the scheme. These are complex decisions where there will not always be a single ‘right’ answer.
“This makes governance critical. Trustees need confidence not only in the decisions they make, but in the processes and frameworks that support those decisions.
“Where decisions have the potential to affect members’ benefits, those processes should be established, tested and understood well in advance. You don’t want to be designing the process at the same time as making difficult decisions.”
Burden adds: “CDC has significant potential, but its success will depend on more than scheme design alone. As the UK CDC market develops, trustee boards should consider whether they have the right governance, experience and perspective to meet the demands of this evolving landscape. Preparing now will put schemes in the strongest position to make balanced, well-informed decisions when it matters most.”