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.

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