Almost half of British people (47 per cent) are not interested in introducing a Dutch-style collective defined contribution scheme (CDC) to the UK, according to research by LCP.
As reported in our sister title, European Pensions, the survey, conducted by YouGov on behalf of LCP of over 2,000 adults, found that 30 per cent of British adults are in favour, and a further 22 per cent do not know.
CDC schemes, which are currently used in the Netherlands, attempt to bridge the gap between traditional defined benefit (DB) schemes and defined contribution (DC) schemes. For a fixed contribution rate, a CDC pension scheme has a target amount the pension will pay out, based on a long-term, mixed-risk investment plan.
A CDC scheme differs from the traditional DC scheme as it does not produce an individual pension pot (which a member then has to decide how best to use in their retirement), but instead pays out a regular income from the collective fund. By also pooling other risks, such as around life expectancy, this means that, with scale, CDC schemes are designed to deliver better member outcomes than similar cost DC schemes.
The CDC model also differs from the traditional DB scheme in that members are not promised a certain retirement income. In particular, the size of future pension increases is driven by the performance of the collective fund. In extreme cases of poor performance, benefits can also be cut back. From the employer perspective this means there is no risk of ‘deficits’ emerging that need to be funded with additional contributions.
Commenting, LCP partner, Steven Taylor, said the results show that although there is “appetite” for CDC schemes in the UK, “scepticism still remains”.
“The pensions schemes bill set out some much-awaited new insight into how CDC schemes will operate in the UK and it looks like it will be a broader model than we had previously expected with two or more connected employers able to set up new schemes. It will be interesting to see how these plans are progressed whoever wins the General Election.”
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