Aon's response builds on the extensive research, analysis and modelling that the firm has carried out into CDC plans globally, and it advises that the introduction of this new type of scheme would be both justified and desirable. Aon believes that CDC schemes can fill in some gaps in the existing UK pensions landscape and offer potentially superior outcomes for many scheme members.
Kevin Wesbroom, senior partner at Aon said: “We are enthusiasts for the introduction of CDC schemes because we believe they have two distinct but connected advantages, namely:
(i) As part of a Wage in Retirement scheme (such as that proposed for Royal Mail) where an employer is no longer willing or able to offer a defined benefit scheme, but does not wish to expose employees to the variability and decisions that are required under an individual defined contribution (DC) arrangement, and wishes to deliver an income in retirement rather than just a capital lump sum at retirement.
(ii) As a standalone Target Lifetime Income. For a retiring individual defined contribution (DC) scheme member this would offer an income option not available in the market at present. It would complement the conventional insured annuity, drawdown and other options available under Freedom and Choice.”
Matthew Arends, partner at Aon said: “In both of these cases, pension outcomes are likely to be superior to those that are currently available. They remove a huge amount of the variability of outcomes generated by traditional DC schemes, offer the potential for higher returns, and would be managed by skilled trustees rather than requiring individual members to take complex pensions savings decisions. For many people, Freedom and Choice means the freedom not to have to make a choice from the bewildering array of options forced on individual members.”
Aon’s view is that CDC plans would sit alongside existing defined benefit (DB) and DC provision, and that it should only be possible to convert existing DB and DC pensions into CDC via individual transfers with the member's consent. The primary legislation to support CDC plans is already on the statute books and so Aon is calling on government to produce the necessary secondary regulations to permit these schemes and to offer generations of savers the potential for improved pension outcomes.
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