Four in ten companies say they are ‘very likely’ to introduce a CDC or a risk sharing style pension scheme

Nearly half of all DC schemes (41%) said they are ‘very likely’ to introduce a Collective Defined Contribution (CDC) pension scheme – or a risk sharing alternative – according to the latest research conducted by Hymans Robertson.*

The firm's analysis reveals that the appeal of CDC is clear. Nearly a third (29%) said that ‘protection against members exhausting their pension pot in retirement’ was an appealing feature of CDC. A quarter (25%) said the attractiveness comes from CDC schemes providing higher pensions for members from the same contribution amount. Another big advantage of CDC is seen to be the reduced burden of decision making for members at, and throughout, retirement (stated by 23%) which contrasts the current labyrinth of options in DC schemes. 

Nonetheless, some concerns remain. Legislative changes that would increase employer risk, and member dissatisfaction with the pension amount received at retirement, were the chief concerns to those corporates polled and this was cited by nearly a third (30%).

Despite the concerns to be expected with large-scale innovation like CDC, risk sharing schemes still retain a certain irresistible pull. Of those companies polled, none said there was ‘nothing appealing’ about CDC schemes. In other words, companies can comprehensively see the appeal of CDC (or risk sharing) schemes.

Commenting on the embracive responses of the industry towards DC risk sharing schemes, Paul Waters, Head of DC Markets at Hymans Robertson says:

“Our research came back with surprising results in the degree of positivity towards CDC from employers. If borne out in practice this would be a massive shift in UK retirement provision, and we anticipate the growth of CDC to be more measured.

“Nonetheless it illuminates the rising popularity of DC risk sharing in the industry, with attention growing after the Royal Mail unveiled the UK’s first CDC scheme in October and the multi-employer CDC draft regulations were published. CDC, or risk sharing alternatives, allow companies to offer pensions that give members the potential of higher retirement incomes, helping address the UK’s adequacy challenge and providing members with more security in retirement.

“As well as underlining how likeable the ‘new kid on the block’ is, this research also demonstrates the work still to be done in DC risk sharing options. CDC will not be right for all funds, and while the enthusiasm is evident, we also need other DC risk sharing designs to meet the needs of different schemes and members.

“Despite this it’s evident that DC risk sharing seems to be one of the most popular and practical answers to DC inadequacy. As likeable as the fresh face of CDC is, however, we must recognise there is a lot of work to be done before individuals’ financial wellbeing in retirement can be tackled by CDC on a wholesale basis.”

*The research examined a sample of 500 respondents of pension scheme decision makers. These include, but are not limited to, CFOs, FDs, Pension Managers, HR professionals, Pension Managers and Directors of firms.