XPS and Aon respond positively to CDC consultation

Both XPS Pensions Group and Aon have responded positively to the Department for Work and Pensions’ (DWP) consultation on collective defined contribution (CDC) pension schemes.

However, XPS said that it was “critical they are well designed and managed” as they would “take choice away from members and present additional risks”.

It also highlighted three “key areas” that the DWP and The Pensions Regulator need to consider in further detail to “ensure the development of a successful CDC framework”.

These were: Sustainability and resilience of CDC schemes for the future, how to ensure fairness of outcome between generations, and member understanding and expectation.

Commenting on the consultation, XPS senior consultant, Jacqui Woodward said: “In our view it will be possible to develop an appropriate disclosure framework that adequately communicates CDC benefits to members.

“However, we would caution against underestimating the risks of CDC schemes in the rush to get them established.

“It is worth taking time to make sure that the new types of scheme can offer a genuine and safe alternative to members and we look forward to providing our input to further consultations on the detailed design of CDC arrangements.”

Aon senior partner Kevin Wesbroom added: “We firmly believe that CDC plans can improve the retirement outcomes for many UK workers via collective investment by professionals not members, by having benefits expressed in income terms not capital accounts, by the pooling of longevity risk and by individuals not having to buy an annuity at poor times in the market - to name but a few advantages.

“We wholly support the focus in the consultation of permitting CDC plans, such as that being set up by Royal Mail, to proceed.

“However, we believe the full potential of CDC to improve retirement outcomes will require decumulation-only vehicles.

“They would provide a much-needed alternative option for the spending phase of conventional individual DC schemes. We would encourage the DWP to make sure that the legislation does not preclude the development of these CDC vehicles.”

Aon head of UK retirement policy, Matthew Arends continued: “We have put forward suggestions in relation to discrimination, communication, auto-enrolment and trustee governance which we believe supplement and build on the framework proposed by the DWP.

“In particular, we encourage the DWP to press ahead with wider public disclosure of the key financial aspects of CDC plans as they develop over time.

“This would make CDC schemes open to the widest public scrutiny and ensure that they remain true to the principles and targets communicated to members.

“We have also suggested a further control process via a sustainability review which would ensure the continued viability of the plan and the relationship between contributions and targeted benefits.”

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