Retirement CDC has the potential to deliver between 25% and 50% higher income in retirement than a DC member purchasing an annuity or following a drawdown strategy. This is not without trade-offs, so is ideal for DC members who need to maximise their income over retaining flexibility or passing on a legacy.
“Too many DC members are currently going to be left with really difficult decisions to make about their retirement income. It simply doesn’t make sense for the overriding experience of DC members at retirement to be one of ‘going it alone’, when the industry is well-placed to deliver alternative approaches that can deliver better outcomes, such as Retirement CDC. So, the development of the recommendations that result from this consultation will be vitally important.
“Retirement CDC is a natural fit with the proposed Guided Retirement duty for pension schemes. Providing a solid default retirement solution for DC members will help people for whom financial advice is not practical. It will also lead to higher volumes into retirement products, helping those products to achieve scale and deliver best value for members.
“While we recognise the importance of keeping focused on the recommendations laid out in this consultation, we would like to see in future a more flexible form of CDC. There are other design structures possible that pool longevity risk without pooling investment risk for example. A more flexible approach like this to delivering risk sharing would give providers wider freedoms to create alternative retirement income products that best meet their member needs.
“As all forms of CDC evolve, it’s right that we should establish CDC as a solid workplace product first. Then we should move on to opening up access to the whole population in retail versions in a safe and controlled way. Trying to offer a retail version from day one risks customer detriment and would considerably delay the launch of Retirement CDC.
“We’d also like to see the exploration of a whole of market “take all” provider, with a commitment to accept any scheme that wishes to join. This would give access to the greatest number of people and allow small employers or others with unattractive commercial profiles to benefit from CDC. It could also serve as a CDC lifeboat for commercial schemes that are unable to continue.”
To achieve this, Hymans Robertson has recommended the following sequence of activity in its response to the consultation:
Step 1 – Unconnected employer whole of life CDC (scheduled to be live 2027).
Step 2 – Retirement CDC (launched in line with the time that Guided Retirement rules come into force).
Step 3 – Flexible CDC (a less rigid framework which allows pension schemes to deliver risk sharing for DC members in the optimal way, based on their knowledge and experience of their members).
Step 4 – Retail CDC (opening up CDC to individual customers and providing access to all savers in the UK).
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