CDC schemes face further obstacles before widespread introduction

There are still obstacles to overcome before collective defined contribution (CDC) pension schemes can be widely introduced into the UK pension landscape, according to MP Baroness Jeannie Drake.

Speaking at the Association of British Insurers (ABI) annual conference yesterday (26 February), Drake highlighted the key issues emerging that could impact the speed at which legislation could be created.

Drake explained: “There are some key issues emerging and we will have to see how the debate goes when the legislation comes.

“The Department for Work and Pensions (DWP) haven’t given it unqualified support, and they’ve particularly highlighted intergenerational fairness [as an issue].

“I think we’ll hear a lot more about intergenerational fairness over the coming year, particularly around types of policy.”

Drake highlighted that the DWP will not support a buffer fund in the proposed Royal Mail CDC scheme because it believed that “trustees can’t be relied upon to reduce pension payments”, so the cost would fall on the younger generation.

She continued to highlight further issues to the introduction of CDC schemes, saying: “You need a flow of new members, cash flow to make CDC work.

“What happens if a scheme winds up? If the flow of members starts to reduce?”

Drake added that there were also obstacles to overcome regarding pension freedoms: “If someone is saying ‘I want to take all my money out’, or ‘I’d like a transfer value’, and then you find that the transfer value that is given is not one that is justified by investment returns.”

Despite the issues, Drake explained that she did not necessarily believe that they should scrap the plans: “There are all sorts of issues, but that’s not an argument not to have them [CDC schemes].”

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