Interest in CDC is growing, spurred by the Royal Mail CDC scheme

[RobertT]

https://www.professionalpensions.com/ne ... onsidering

Support for collective defined contribution (CDC) schemes is growing with more than a fifth of businesses now considering using it for their own employees, according to the Association of Consulting Actuaries (ACA).
The firm's 2021 Pension Trends Survey revealed more than half (58%) of survey respondents support extending CDC beyond the Royal Mail scheme, to allow industry-wide and multi-employer while 21% of businesses are interested in CDC for their employees.

It also found 54% support its extension to allow industry-wide and multi-employer CDC schemes, this is up eight percentage points compared to the firm's survey last year.

The report also found 25% would consider a CDC master trust for both accumulation and decumulation.

The ACA's research found contributions into ‘traditional' defined contribution (DC) schemes have "flat-lined at levels which fall short of providing comfortable retirement incomes", while defined benefit (DB) schemes "are becoming increasingly scarce in the private sector".

The firm said: "Against this backdrop, interest in CDC is growing, no-doubt spurred by the Royal Mail CDC scheme. Businesses seem equally interested in setting up their own CDC schemes (as a replacement for defined benefit schemes and/or DC schemes); or introducing CDC as an enhancement to the DC master trusts they currently offer to employees."

Chair Patrick Bloomfield said: "The level of business interest in CDC as a new form of pension saving is very exciting. These findings back up the experience of ACA members, who are working with many businesses looking into offering their employees a CDC scheme.

"It underscores the opportunity to make CDC a core part of the UK's future pensions landscape."

He continued: "It's wonderful to see the Royal Mail CDC scheme coming to fruition. The ACA encourages the government and The Pensions Regulator to build on this momentum and business enthusiasm.

"CDC has the potential to supercharge other government policy initiatives, like increasing pension scheme investment in patient capital, illiquids and infrastructure."

ACA CDC spokesperson Chintan Gandhi added: "While understanding of CDC has developed over the past few years, it's really encouraging to see how fast real acceptance of the concept is growing. That reflects the increasing awareness of its value in providing an income for life in retirement on a fixed cost basis, and as a means of saving which doesn't involve having to make complex financial and investment decisions.

"In addition to the strong support shown in favour of single-employer and multi-employer/industry-wide CDC schemes, perhaps most exciting is the growing support for CDC in the decumulation phase, where employers are clearly beginning to consider the possibility of an option for their employees to buy a CDC pension at retirement.

"This would be best delivered through commercial master trusts and, given previous analyses from across the industry has revealed that CDC may be able to deliver around 30% better outcomes compared with individual DC where annuities are used to purchase lifetime income in retirement, this would pave the way for millions of savers to access a more cost-effective income for life in retirement."