For most private sector workers, it is impossible to save for a pension that will deliver a reliable, cost effective income for life in retirement. Collective Defined Contribution (CDC) pensions - enabled by the Pension Schemes Act 2021 - offer a solution to this problem.
In Summer 2021, we asked a wide cross section of the UK pensions community to respond to an online poll aimed at helping identify the demand for CDC, and the best architecture for any new system. We found at least three significant conclusions.
- There is overwhelming support for CDC outcomes; in particular that pensions should provide savers with an income which lasts for their life. But while the principal benefits of CDC have strong support, there are a lower number of respondents who are contemplating introducing CDC arrangements in the immediate future.
- CDC should be made possible under multi-employer arrangements as well as by single employers. If this is the government’s ultimate intention it may be helpful to act soon, or at least signal if and when this will be introduced. The survey suggests legislative uncertainty may delay uptake.
- There was a wide range of views on the best structure for CDC. There was also a concern about the potential complexity of CDC. This may indicate the need for work to be done which would help create a consensus on the best design for CDC. In the absence of consensus, the current survey would suggest legislation for CDC should be quite ‘open’ in terms of structures and expectations. Protection of savers would therefore best be achieved by (i) clear contingent rules on benefit entitlements which have been robustly stress tested (ii) communication and transparency (iii) trustee-style governance.
This research was conducted by the RSA CDC Pensions Forum, which was formed in 2021 to bring together stakeholders who would like to support the development of CDC pensions in the UK. The Forum is sponsored by Aon, First Actuarial, the Institute and Faculty of Actuaries, CMS and Lane Clark Peacock. This briefing is the work of its authors and does not aim to reflect the views of any of the Forum’s sponsors.
Hari Mann David Pitt-Watson
Pension charges have long been hidden from customers. Hari Mann FRSA and David Pitt-Watson FRSA look back at the part the RSA has had to play in bringing about transparency and disclosure of costs.
Toby Murray looks back on the RSA's work to make CDC pensions a reality, reflecting on a process that has championed collaboration and found common ground.