With the UK’s Department for Work and Pensions (DWP) working to pass legislation to roll out collective defined contribution (CDC) pension schemes, several firms are considering them for their employees.
Around one in eight (13%) corporate pension scheme decision-makers believe that their company is either likely or very likely to adopt CDC schemes in the coming six years, according to a recent survey of by global corporate advisory firm Willis Towers Watson.
That is, of course, provided the DWP’s legislation goes through.
In fact, Royal Mail and the Communication Workers Union have already enquired about the requirements needed to provide CDC schemes for their staff.
Willis Tower Watson’s research found that, while the majority of firms offer individual DC pension schemes, 66% of participants prefer a solution that would allow them a regular income rather than a pension pot.
Members struggle to understand
One of the issues highlighted in the survey was that over a third of respondents (34%) believe members would struggle to understand how CDC schemes work.
According to the DWP, it would need a “robust communication strategy”.
Additionally, the department said that a member’s pension would be calculated by:
- Estimating how much money is needed to meet the benefits credited to each member,
- Adding up the values for each member to determine the total assets available,
- And if the assets do not match the benefits credited to all members, measures will need to be taken so that the total value of benefits is equal to the total value of the scheme’s assets.
Schemes’ possible structure
The government said that it would work on the different structures and designs for such schemes, such as master trusts or multi-employer solutions, in the second round of legislation.
However, the majority of respondents (58%) believed that, if CDC pensions were to work properly, a master trust-like structure would not be suitable for delivery.
“New things usually take time to catch on,” said Simon Eagle, senior director of Willis Towers Watson’s retirement business.
“While only a minority of organisations are expecting to be part of the first wave of collective defined contribution benefit provision, our data shows that most organisations would like to provide their employees with a regular income in retirement rather than a flexible pensions pot.
“This suggests there may be further appetite for CDC provision in the longer term.”