CDC must be made attractive to all with a range of designs from multiple providers. Hymans Robertson publishes industry roundtable report

CDC must be made attractive and accessible through a broad range of designs from multiple providers as the market becomes established, claims Hymans Robertson as it launches CDC: The pensions industry perspective - a paper drawn from an industry roundtable discussion. The paper looks at the key challenges that must be overcome as the market develops and concludes that CDC will deliver better outcomes if it follows this path. It also says that while single employer or sector-based CDC is the most straightforward approach, a non-commercial ‘take-all’ multi-employer CDC scheme would provide both security and an impetus for the growth of CDC in the UK.

The roundtable, hosted by the leading pensions and financial services consultancy, heard views from industry bodies, Unions, DC schemes, providers and trustees. The group considered how the challenges facing the CDC market emerged and looked at how the design could, and should, develop for CDC to reach the optimal size and shape.

The key challenges – and solutions - were identified as:

• Scale: There’ll be a need for scale to develop CDC beyond the single employer model which will only be suitable for a handful of large employers. The extension to multi-employer will be needed for accessibility. This is vital for the longevity and investment pooling benefits to be seen. It would work especially well for homogenous industry sectors.

• Flexibility: There’s a lack of flexibility in the regulations which will need to be addressed. If not, it will form a barrier to much-needed innovation and development in the CDC market. Flexibility will also be needed to make it straightforward to transfer into the scheme from DC, to make it attractive for providers to enter the market. 

• Exit strategy: There will be a requirement for a clear exit strategy for schemes who are unable to continue in the long term, as covered in the draft regulations published in the Autumn. This will provide confidence for employers and schemes to be early adopters in what is a new market. Stakeholders will need that reassurance before venturing down a new path.

Commenting on the need for a broad range of designs to overcome potential challenges in the development of CDC, Paul Waters, Head of DC Markets, Hymans Robertson, says:

“It is great to see that the momentum is powering behind the development of CDC Schemes. The launch of the Royal Mail Scheme was a key milestone and the consultation on multi-employer CDC scheme has provided a clear indication that the Government will continue to support the growth of CDC. Yet, this must be done with eyes open to the challenges that need to be addressed, a willingness to embrace the benefits of a broad range of designs and encouragement for the support of multiple providers. If done properly, it will generate innovation in the market and ultimately provide better outcomes for members - the true goal.
 
“As the market develops and matures there’s going to be value in having a range of different CDC schemes. In our roundtable discussion there was a divergence of views on what the five year picture will look like. We believe the industry will benefit from a non-commercial take all-type arrangement to provide access for all members and an impetus for the market’s growth. In reality, in 10 years we could have a handful of large single employer CDC schemes, like Royal Mail, and a similar number of sector-based schemes. We also expect to see a number of commercial multi-employer schemes too.
 
“CDC is still an unfamiliar concept to most people. We need to help people understand and get comfortable with it. As an industry, through CDC we can deliver substantially better retirement benefits that work well for the majority of people. If delivered consciously and carefully it could improve the social contract between generations. It is important to keep at the heart of the CDC conversation the retirement adequacy challenge that CDC can help to address.”

The paper CDC: The pensions industry perspective can be found here.