PLSA IC 23: Compulsion recommended for decumulation-CDC success

Decumulation-only collective defined contribution (CDC) would require some form of compulsion in order to maintain the scale needed to run effectively, Phoenix Group managing director, individual retirement, Claire Altman, has suggested.

Speaking at the PLSA Investment Conference 2023, Altman stated that the only way to maintain scale with decumulation-CDC “is with some measure of compulsion”.

The two ways to achieve this, she explained, would be to have decumulation-CDC as a default option for members coming out of a master trust, and to have people unable to leave the CDC product once joined, “because if you don’t, I just can’t see how you could be confident that you could maintain the scale required”.

According to Altman, modelling shows CDC scheme require upwards of 5,000 members to work effectively.

Altman also suggested that decumulation CDC schemes would need to be medically underwritten, as otherwise members may receive a better income with a medically underwritten annuity, making CDC “very difficult to operate for trustees”.

In addition to this, she recommended that the CDC legislation have some form of ‘safe harbour’ for employers, explaining that anything that could lead to additional liability would be a reason why employers could push against CDC.

“As a provider you don’t want to wake up one day and find you have an additional liability. So, I think there has to be something in the legislation that does not require the sponsor of the CDC scheme to indemnify benefits,” she added.

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