There is widespread support for the introduction of Collective Defined Contribution (CDC) pensions in the UK, new research suggests.
The research findings will be outlined at a launch of a new Forum today, attended by the Pensions Minister, Guy Opperman, Shadow Pension Minister, Matt Rodda, and David Linden, SNP Work and Pensions Spokesperson.
The research, carried out by the RSA (royal society for arts, manufactures and commerce) CDC Forum, finds:
- 25% of respondents said they were likely or very likely to introduce them, while a further 28% thought it possible they would introduce them within five years. Given the scale of UK pensions, with contributions amounting to 6% of the annual GDP, a 25% adoption rate would be very significant indeed, particularly at this early stage in CDC’s development.
- Respondents overwhelmingly believed the purpose of a pension should be to “create an income”, not to “provide a savings balance in retirement”. Nearly two thirds felt strongly that the first of these should be the goal. Only 1% strongly favoured the latter. Since this is the key advantage which CDC offers over Defined Contribution (DC) pensions, this suggests a very considerable demand for the outcome provided by CDC.
- Just 4% of the respondents preferred setting up their own CDC pension plan. Two-thirds preferred a multi-employer option, either for an industry or for any employer. Multi-employer plans are likely to be lower cost, and more effective if they can offer standardised benefits that are fair for their members.
The research is released as the RSA today announced the establishment of a Forum to promote the development of Collective (CDC) pensions in Britain. Previous RSA research demonstrated the UK could build a pension architecture that, by offering the choice of CDC pensions, should be able to deliver better pensions for current and future generations.
Though they operate successfully in other countries, until recently CDC was not permitted in the UK. However the passage of the Pensions Schemes Act 2021 now makes this possible. Royal Mail (supported by its union, the CWU) has publicly announced their intention to implement CDC. See notes for more information.
CDC pensions offer a ‘middle way’ between defined benefit (DB) and defined contribution benefits, and are designed to provide a lifetime income but without the costly guarantees of DB or annuities. All studies show that for the same contributions, CDC provides an income-for-life pension which can be 30%+ higher than the closest alternative available today; that is a Defined Contribution (DC) pension which is then used to buy an annuity.
David Pitt-Watson, Co-Chair of the RSA CDC Forum, said:
“With the primary legislation passed, we have the opportunity to build a better architecture for pensions in Britain. To do so will require a consensus about the best way forward — from policy makers, employers, unions, members, regulators and others. That is what the Forum aims to do.
“There is a clear need for pensions which offer an ‘income for life’. Every study concludes that CDC offers a 30%+ upside over insured annuities. To realise that outcome will require, debate, discussion and consensus about how best to structure and regulate CDC. With 6% of the GDP spent on private pensions, the prize from doing so is enormous. We need to ensure that the benefits and indeed risks of the scheme are widely understood by the pensions industry, large and small employers, as well as potential beneficiaries.”
Guy Opperman, Pensions Minister, said:
“The success of CDC schemes is predicated on members and trustees having confidence in them, and I am well aware of the wide-spread industry support for the introduction of CDC schemes.
“I welcome the establishment of this forum, which has been set up to help address the question of where to go next with our CDC policy and its implementation.
“I truly expect this to be a driver of progress towards greater adoption of CDC pension schemes, especially now the Pension Schemes Act 2021 has received Royal Assent and the primary legislation needed for CDC schemes to operate in Great Britain is in place.”
Mark Hall, Deputy Head of Engagement, RSA: email@example.com
David Pitt-Watson, RSA CDC Forum Co-Chair: firstname.lastname@example.org
The RSA CDC Forum asked a cross-section of the UK pensions community to provide their answers to a short online poll, which was also open for general responses. Respondents had an opportunity to undertake the poll anonymously.
The research was developed by the CDC Forum including input from Aon, First Actuarial, the Institute and Faculty of Actuaries and CMS. The data therefore is from individuals who are currently active in the UK pensions system across both DB and DC systems.
About the RSA CDC Forum:
The CDC Forum at the RSA was formed in 2021 to bring together stakeholders who would like to support the development of CDC pensions in the UK.
The Forum will undertake research and support collaboration and learning amongst stakeholders. Its ultimate aim is to allow for the introduction of CDC in a way, which will support better pension outcomes in the UK.
Work on CDC has been ongoing at the RSA since 2009, initially under the banner of the Tomorrow’s Investor project. More recently the RSA has supported the passage of the Pension Scheme Act 2021.
The Forum is sponsored by Aon, First Actuarial, the Institute and Faculty of Actuaries, CMS and Lane Clark Peacock. This document is work of its authors and does not aim to reflect the views of any of the Forum’s sponsors.
The RSA (from August 2020, the royal society for arts, manufactures and commerce) is an independent charity, committed to a future that works for everyone. A future where we can all participate in its creation.
The RSA has been at the forefront of significant social impact for over 260 years. Our proven change process, rigorous research, innovative ideas platform and diverse global community of over 30,000 problem solvers, deliver solutions for lasting change.
Legally, the Royal Society for the Encouragement of Arts, Manufactures and Commerce (‘RSA’) is a Royal Charter Company and registered charity in England and Wales (charity number 212424) and in Scotland (charity number SC037784).
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