Research shows CDC would be a hit with DC scheme members

Pension savers appear to be willing to give up flexibility to gain a higher income from their retirement savings, according to research from Hymans Robertson. 80% of DC scheme members would give up their flexibility for a higher income from their pension while over three-quarters (78%) would give up flexibility in exchange for that retirement income to be guaranteed.

The research also specifically asked savers which features of CDC appealed to them. Protection against running out of money in retirement (48%) and receiving a higher overall pension from the same amount saved (46%) were the most favoured benefits, indicating that CDC would appeal to members, claims the leading pensions and financial services consultancy. With CDC features clearly being attractive to DC members, the firm is calling for CDC innovation to be embraced by the industry and Government as a vehicle to address retirement income inadequacy.  

The backing of the Government will be vital for CDC success, the research also indicated. Nearly two thirds (63%) of those polled said they would find CDC more attractive if it was actively promoted through a Government initiative, and 60% said they would be more positive if it was run by a Government backed pension provider. This compounds the call for the Government to rally behind CDC as a tool to improve the adequacy of UK private sector pensions.  

Commenting on how the research highlights the appeal of CDC, Paul Waters, Head of DC Markets, Hymans Robertson, says: 

“Our research shows that there’s a wide appetite for CDC amongst scheme members. A higher, secure retirement income from the same pension contribution is certainly a compelling draw. The Government and the industry must listen to these results and use them to catalyse developments in rolling out CDC. Risk sharing and collective saving, such as CDC, will be crucial tools in the ongoing battle to improve the adequacy of pensions. 

“It’s also interesting to see that, if the Government plays a role in the development of CDC, it will help gain the confidence of savers. The consultation currently under review on multi-employer CDC was an important sign that the Government will continue to support the growth of CDC, but it will be good to see further commitment. Communicating the benefits of CDC will be a crucial step in starting to improve adequacy and something the new Pensions Minister should consider. I hope that he cuts through the noise and throws his weight behind CDC – it could be the cornerstone of improving the quality of retirement for countless people across the UK.” 

The research also showed that savers are willing to accept some of the trade-offs of CDC to reap the overall rewards of the innovative pension scheme design. One-third (32%) said they would accept a 1-2% reduction in retirement income in some years in exchange for a higher overall pension. Another third (34%) would accept a 2-5% reduction of retirement income in some years to get a higher income in most. Only one in ten (12%) wouldn’t be comfortable with any income reduction in some years to get a higher overall retirement income. Nearly two thirds (62%) said they would be happy with different generations receiving different amounts of retirement income, which can happen under CDC, provided their own pension is greater than it would have been through alternative pension schemes.  

Commenting on the willingness of savers to accept trade-offs for the benefits of CDC, Paul continues: 

“We know that CDC isn’t a one-way bet – the benefits come with trade-offs and it’s important these are well understood. It’s helpful to see that savers are willing to embrace the concept of CDC – even with some of these trade-offs. People were willing to accept the occasional year of lower retirement income for a higher overall pension and were generally accepting of generational fluctuation in retirement income levels. Getting the communication right to ensure this is borne out in practice will be key. But it’s loud and clear from the savers questioned in this research, that there’s a willingness to support this innovative pension scheme design if it delivers a higher, secure pension income in retirement than DC.”