CDC will be misconstrued as DB – Blake

Savers will still think of collective defined contribution (CDC) systems as akin to defined benefit promises, Pensions Institute director David Blake has warned.

Speaking at the recent Longevity 14 conference, Blake highlighted that CDC has been discussed in the UK a few times in the past and has always fallen away.

“In the past 10 years we have had about three times in which CDC was actively discussed on a regular basis, before it goes back down again.

“There was a consultation in the Labour government in 2008/9, another consultation a few years ago and there is a new one now, but the years are going past and nothing is happening,” he said.

The Royal Mail has led the latest debate about CDC, with its Communication Workers Union-approved proposal for a CDC scheme with a DB lump sum alongside it. It has called upon the government to make the necessary legislative changes for them to be able to implement this structure.

According to Blake, Royal Mail is “quite determined and it has got enlightened union representatives, along with an enlightened employer, wanting to try CDC”, meaning this could be the catalyst for the start of CDC in the UK.

“But as always, I think the workers will think that this is the reintroduction of the DB guarantees model, although employers say it is not. Employers will state that in the details, and people will nod, until the time when they are told that their pension has to be cut. Then they will say that nobody told them that,” he warned.

The government has recently confirmed that it will launch a formal consultation into the first CDC pension schemes in the autumn.

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