The new Collective Defined Contribution (CDC) plans, which will be announced in the Queen’s speech on 4 June 2014, may offer cost savings for pension savers but Broadstone is sceptical about whether they will ever get off the ground in the UK.
We live in a post-Defined Benefit world where many FDs continue to rue the day their predecessors agreed to the open ended pension commitment of such schemes and where behind the scenes they continue to place considerable financial strain on many of the country’s employers. Most private sector employers closed their DB schemes over the last ten to fifteen years replacing them with DC arrangements, with comparatively lower levels of contributions.
A feature of Collective DC is an “aspiration” of a benefit at retirement which could be perceived as a defined benefit by members. With those expectations could come moral imperatives for some employers, it is unlikely that employers that bear the scars of DB would embrace these new risks with open arms.
David Brooks Technical Director at Broadstone Corporate Benefits added in relation to the chancellor’s announcement for increased flexibility from April 2015:
“Which employer wants to explain to their employees that they are entering into an arrangement that removes all the new flexibilities that have been trumpeted by the press and have just come into force for an ‘aspiration’ they will be better off in retirement. Given this and that most private sector employers are still bedding down auto enrolment we cannot see much appetite amongst employers to rewrite their pension schemes.”
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