Govt encouraged to make CDC pensions more flexible to improve take-up

The government should make the framework for collective defined contribution (CDC) schemes more flexible to encourage take-up and make it fairer for younger members, according to LCP.

The firm’s response to the government consultation on CDC regulations said further flexibility was needed due to the framework having been drafted with the Royal Mail scheme in mind, leaving sponsors who may wish to explore different benefit structures facing limited options.

It added that younger members could be missing out because, under the proposed regulations, sponsors would not be free to design more innovative contribution approaches that reduce intergenerational cross-subsidies.

LCP also called for CDC schemes to be made more compatible with automatic enrolment.

The firm explained that the rules needed to allow people to build up benefits at more than one rate, a move which it said would “help to highlight to sponsors that CDC schemes can be used to provide affordable benefits across the whole workforce”.

Finally, the firm called for the criteria for multi-employer schemes to be evolved, arguing that it needed to be made easier for groups of companies to have the option to move to a CDC pension structure if they wanted to.

LCP partner, Steven Taylor, commented: “It’s great news to see progress in the design of CDC schemes but there are creases to iron out to make them more accessible and really be the ‘third way’ between defined benefit and defined contribution schemes.

“They need to be far more flexible as the regulations as they stand are primarily based on the Royal Mail scheme. Many company schemes won’t fit neatly into this mould and this will hinder take-up of CDCs.

"There also needs to be more thought around how the scheme design can be made fairer across the generations and ensure that younger members aren’t subsidising older members.”

The consultation was launched in July and closes on 31 August.

    Share Story:

Recent Stories


Making pension engagement enjoyable through technology
Laura Blows speaks to Nick Hall, business development director and Chartered Financial Planner at UK-based Wealth Wizards about the opportunities that technology provides for increasing people’s engagement with pensions and increasing their retirement wealth. Please click here for an edited write-up of the video

ESG & DC – creating the right tools
In the latest of our series of Pensions Age video interviews Francesca Fabrizi, Editor in Chief of Pensions Age is joined by Manuela Sperandeo, Head of Sustainable Indexing EMEA, BlackRock and Mark Guirey, Executive Director, Asset Owner and Consultant Coverage - MSCI to discuss some key trends of ESG investing among UK pension funds today. Please click here for an edited write-up of the video

Are current roads into retirement delivering member value?
Laura Blows explores HSBC Master Trust’s recent report, Converting pension pots into incomes, with HSBC Retirement Services CEO, Alison Hatcher.

Pension portfolios – the role of asset-backed securities
Laura Blows is joined by Royal London Asset Management (RLAM) head of sterling credit research, Martin Foden, and its Senior Fund Manager, Shalin Shah to discuss the role of asset-backed securities (ABS) within pension fund portfolios
Incorporating ESG into fixed income
Laura Blows is joined by TCW head of fixed income ESG, Jamie Franco, to discuss incorporating environmental, social and governance (ESG) strategies into fixed income portfolios

Advertisement