Collective defined contribution (CDC) pension schemes are either 10 years too early or 10 years too late, Aon Hewitt senior partner Kevin Wesbroom has said.
In a panel discussion at the Pensions Management Institute’s Pensions Aspects Live conference, both Wesbroom, and Hargreaves Lansdown head of retirement policy Tom McPhail, debated the pros and cons of introducing CDC schemes into the UK pensions sector.
Agreeing with Wesbroom, McPhail added that it would be “difficult to drop CDC into the current pensions landscape”.
Looking at why the plan may not be currently viable, Wesbroom noted: “CDC doesn’t solve adequacy…it doesn’t solve the fact that we’re not putting enough in to our pension pots".
However, Wesbroom, who also argued for this type of scheme, noted that “CDC can pay an income for life”. CDC investments can “smooth the ups and downs of the market” rather than “playing pensions roulette” whereby investments may leave savers gaining anywhere between 10 to 80 per cent of their pay in retirement, which other defined contribution schemes may do, he explained.
Looking at the broader picture, the recent CDC deal agreed upon by the Royal Mail and Communication Workers’ Union could offer a glimmer of hope for CDC becoming a reality.
“The Royal Mail/CWU agreement will drive CDC,” Wesbroom said, as more large, legacy defined benefit schemes may have an appetite to move to CDC to provide a guaranteed pension for members.
Nonetheless, in a Select Committee hearing with chair Frank Field earlier this year, the Pensions Minister Guy Opperman highlighted that legislation to enable collective defined contribution (CDC) schemes must be made to “accommodate everybody” and not just Royal Mail.
“We’re not in the business of creating legislation, bespoke pieces, for one individual organisation. Part of the difficulty is…that it is important that legislation is created in a way that can accommodate everybody because if you get in to bespoke pieces [everybody will want it that way],” Opperman said.
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