Rob Harper, Partner at pensions and risk consultancy, Hymans Robertson comments on the DWP’s launch of a consultation on CDC schemes:

“There is a clear benefit from some form of pooling of risk for individuals in retirement and this consultation is a step in the right direction to provide a more reliable income for millions in employer pension schemes where the future looks uncertain. Compared to annuitisation and drawdown, CDC could potentially deliver this security in an alternative and pragmatic way by pooling risk for members, particularly in the later stages of their retirement. However, the advantages of CDC in the pre-retirement ‘saving’ phase compared to current DC schemes are much less clear.

“A couple of challenges will need to be addressed. These include establishing a suitable regulatory framework to ensure comprehensive governance processes and cost effective running of CDC schemes. Clear member communications are also essential to support member understanding of what CDC really means.

“CDC will not be a ‘one size fits all’ solution. The scale of assets and membership required to pool risk safely will limit this option to only the very largest schemes such as the Royal Mail or other arrangements that can achieve sufficient scale.”