Government announcement on the move towards an expansion of CDC schemes

Commenting on the Government’s announcement on the move towards an expansion of CDC schemes, Jon Hatchett, Senior Partner, Hymans Robertson says:

“Today’s regulations are the final piece of the jigsaw needed for CDC to take off in the UK. Our research and work with employers has shown that multi-employer CDC master trusts are the vehicle that the vast majority of employers want for CDC. This is not a surprise when you consider the success and popularity of DC master trusts. We now have the regulatory certainty needed for providers to design and launch CDC schemes. The benefits of CDC are clear from our research – a higher pension and a secure income for life.

“It’s good to see the focus on retirement CDC with the announcement of today’s consultation. Retirement CDC has an important role to play in the drive for greater adequacy, particularly for existing older DC members who will not be able to have the benefit of decades of saving into a whole of life CDC scheme. This would be a welcome new option at retirement for schemes that will be complementary to DC and able to fit around the existing workplace DC framework. The benefits of pooling longevity risk are especially important for pensioners, as for the typical person those risks are intractable in drawdown. With the Pensions Schemes Bill including provisions for a default retirement approach that includes a degree of longevity protection, we expect it to play a prominent role as an ideal solution. It’s great that the Government is building on all the progress and effort that has gone into developing whole of life regulations; it means we should see retirement CDC come to life much more quickly.

“With the Pension Commission working on how to improve retirement adequacy across the UK, CDC has a valuable role to play. It gives another option over and above just putting more money into a pension through increased contributions. Both are important and can work together. In our ‘Untapped Potential of Pensions’ paper we advocated for an increase auto enrolment minimum savings rate of 12% of pay, but noted that CDC schemes may be able to deliver a higher level of benefit. CDC could operate at 1% or 2% below this 12% rate and still deliver more for members. We’d love to see the Commission explore the role that CDC can play here and how ideas like this could provide a win for members, employers and government.”

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