Employers have ‘no appetite’ for CDC

There is a lack of appetite to create collective defined contribution (CDC) schemes amongst employers, as the “tide” has already turned for defined contribution, it has been said.

In a panel discussion at the Barnett Waddingham Annual Pensions Conference on Tuesday, 1 May 2018, Barnett Waddingham partner Simon Taylor said that if the conversation on CDC had happened ten years ago then it would have had more chance of happening.

Royal Mail was the first to move towards a CDC scheme and last month outlined its initial plans for its proposed CDC scheme, with the aim to make minimal legislative changes, to the Work and Pensions Committee.

Taylor said: “If we had discussions around CDC 10 years ago, there wouldn’t have been this inexorable tide of moving towards DC and I think employers have now got to the position where they have gone from defined benefit, I’ve got to DC, why would I go back.”

He added that employers were worried about "legislation creep" that would come from CDC.

“One of the way CDC works in one form, if the funding doesn’t work out as it should, you have the ability to reduce members' benefits and at least one employer has said to me, ‘I just don’t trust the government to put in some legislation which says you can’t reduce members benefits’. So there is suspicion from employers definitely”, Taylor added.

However, The Association of Member Nominated Trustees co-chair Janice Turner disagrees and believes there are some employers who would like to improve the position of its members.

She said: “We are in a chicken and egg situation, everybody wants somebody to make the first move, everybody wants to see a scheme set up to see what it’s like … and I think that’s quite a reasonable position to take and right for your members.

“We now have Royal Mail and I have heard from trustees that employers that would actually like to do more for their members, they have closed their DB scheme and opened a DC scheme, but the recognise the vast difference in outcome.”

Taylor added that he thinks there might be more of a drive for CDC once the first generation of workers who have only had DC benefits comes through to retirement and they find they haven’t got adequate retirement incomes.

Furthermore, Royal Mail has proposed that a “possible route” to introduce the CDC scheme could be through the 2011 Pensions Act: “to amend the “money purchase” definition in the 1993 Pension Schemes Act”.

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