Chintan Gandhi, partner and head of Collective DC at Aon, said: “These regulations are a huge step for UK CDC. They will open up the market to multi-employer whole-life CDC schemes, including those provided by master trusts, and enabling them to meet the needs of all employers and the self-employed – regardless of the size of their workforce or their contribution budgets. Aon has a long-standing commitment to CDC. Our original research in 2013 revealed that CDC pensions, on average, were expected to deliver over 30 percent better pension outcomes than might otherwise be available through annuity purchase at retirement. Since then, we have been at the forefront of efforts to make this new form of pension saving a reality. Now, with these new regulations, multi-employer whole-life CDC schemes should be of interest to all employers.”
“However, looking beyond these regulations, we ask for the swift extension of The Pension Regulator’s CDC guidance. It is only with visibility of the entire regulatory regime that any prospective provider can judge whether they can introduce multi-employer whole-life CDC schemes to the masses - and in a way that is commercially viable. While it is good to see momentum building behind CDC, it is unfortunate that trustee duties to provide DC guided retirement under the Pension Schemes Bill look set to be delivered without the legislative framework for retirement CDC being in place for trustees to select this option.”
“This omission potentially exposes retirees to being defaulted into annuity purchase over CDC as their default income option at retirement – which will not necessarily suit everyone’s needs. It also risks prospective retirement CDC providers not being able to establish sufficient scale - which appears to undermine the policy intent. This is particularly disappointing in light of the findings from our joint research with Aegon which revealed that there is significant demand for CDC at retirement. Almost one in three respondents expressed a preference for a CDC pension as an alternative to drawdown and annuities. This is because CDC at retirement generally offers the opportunity to convert pot to pension more efficiently than an annuity and removes the risk of running out of money inherent in drawdown.”
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