Pensions - Articles - Call for caution on Retirement CDC

Like other forms of CDC, these would pool investment and mortality experience and while aiming to provide an inflation linked income for life, would not guarantee the level of income year-on-year, with the potential for this to reduce if scheme experience did not meet projections. 

Responding to the DWP Consultation on Retirement CDC which closes Thursday 4th December, Steven Cameron, Pensions Director at Aegon said: “The concept of Retirement CDC warrants further exploration and analysis and could prove to be a valuable addition to retirement options. Indeed, research Aegon undertook with AON shows the concept could appeal to around one third of pension savers. 

“However, the concept is unproven. It is a highly complex innovation and needs substantially more thought before it can be safely offered within the wider pensions market. Trustees and scheme providers will also need to build full confidence before offering it to members. A key area for consideration is how to frame medical underwriting to avoid those in poorer health unfairly subsidising healthier – which often means wealthier - members.  

“While there have been various claims around the likely income from Retirement CDC, these are highly dependent on investment strategy and are unproven. We urge the government not to ‘oversell’ the concept to trustees or scheme providers particularly if, as the consultation implies, it sees Retirement CDC as a candidate for the Pension Schemes Bill’s default pension benefit solutions. 

“If Retirement CDC is to be a mass-market solution, it’s imperative that it’s not rushed into, first needing very careful design and delivery. With so many other huge workplace pensions changes being driven by government, there are additional ‘bandwidth’ risks here across much of the industry. 

“However, if after proper analysis, Retirement CDC is shown to be an attractive option, then rather than the current plan to bar it from the retail market, we’d urge the government and FCA to explore how to offer access to retail customers outside workplace pensions, potentially with a requirement to seek advice.”