Feature – CDC


members, or several millions, and in some cases, billions of pounds in assets under management.” But he argues that the appeal of collective arrangements extends beyond employers solely offering DB. Gandhi says CDC offers benefits which he calls “the three Es”: efficiency, employee value proposition and ESG.


“Efficiency comes from the better bang for your buck CDC offers,” he adds. “Our research shows that on average savers can achieve a 30% higher income using CDC compared to an annuity. CDC also improves the employee value proposition because there is a greater chance [than with DC] of being able to retire with an income for life, so it helps with recruitment and retention. “Finally, when pooling contributions and investment returns together you can take a longer time horizon, and increase the opportunity set to invest in a more sustainable and responsi- ble way.” All this, Gandhi says, makes CDC an attractive proposition, and there is evidence employers are considering risk-sharing options. “Results from an Aon poll reveal that 10% of employers are already pursuing CDC with a further 14% considering collec- tive arrangements as part of their next benefits review,” Gan- dhi says.


Expanding opportunities Yet given the size constraints of setting up CDC, the govern- ment believes the opportunity to offer the schemes needs to be extended to multi-employer arrangements and master trusts. In March a DWP consultation closed, which had invited the industry to comment on how a CDC framework could be adapted to allow more employers of all sizes to offer CDC schemes, and to allow more flexibility in design. Echoing pensions minister Trott’s excitement following the authorisation of RMCPP back in April, the DWP tells portfolio institutional: “We have seen the positive effect of these schemes in other countries and our plans to extend our CDC framework will enable more pension savers to achieve the retirements they want.” However, the DWP continues to consider responses and says it will respond in due course. Again, as with the viability of CDC for single employer schemes, there is some scepticism that appetite exists for col- lective saving within a multi-employer or master trust framework.


In its response to the consultation, the National Employment Savings Trust (Nest), which is the UK’s largest master trust and acts as the default arrangement for employers under auto-en- rolment, said: “We haven’t seen any evidence of an appetite among employers to deliver CDC so far”, although it added that “employers are thinking about, and interested in, how to


52 | portfolio institutional | June 2023 | Issue 124


Is it fair to pool invest- ment and mortality risk given the variation in the membership?


Steven Cameron, Aegon


help their employees have a smoother path into retirement”. The story is similar at Now Pensions where Stefan Lundbergh, head of DC platform, says: “I don’t need to hire bouncers to keep the entrance clear for people who want to come in and talk to us about CDC.


“CDC is an acquired taste; I don’t think it’s going to be main- stream,” he adds. “Maybe if it had been an alternative to DB 20 years ago, but it’s a bit late now. There is already a solution that works with traditional master trusts, so why move to some- thing else?”


The challenge in the way of wider take up, says Aegon’s Cam- eron, is ensuring equity and fairness within a multi-employer CDC arrangement since there will be considerable differences in expected longevity across the membership that need to be reconciled.


“Different employers participating in CDC will pay different contributions, and the demographics of the workforce will be different, as will mortality experiences. Is it fair to pool invest- ment and mortality risk given the variation in the membership?” Cameron adds: “The actuarial discipline required will be far greater [than with conventional pension schemes] because of the need to ensure equity and fairness across the members.” However, according to a straw poll conducted by Willis Towers Watson (WTW) at a pension conference held in November last year, employers expressed interest in accessing CDC through master trusts. More than nine out of 10 (93%) attendees thought that CDC decumulation would be of interest to retirees, and four-fifths (79%) wanted to facilitate it for their members. Of that 79%, nearly three-quarters (72%) say they would want to do so through a master trust.


Page 1  |  Page 2  |  Page 3  |  Page 4  |  Page 5  |  Page 6  |  Page 7  |  Page 8  |  Page 9  |  Page 10  |  Page 11  |  Page 12  |  Page 13  |  Page 14  |  Page 15  |  Page 16  |  Page 17  |  Page 18  |  Page 19  |  Page 20  |  Page 21  |  Page 22  |  Page 23  |  Page 24  |  Page 25  |  Page 26  |  Page 27  |  Page 28  |  Page 29  |  Page 30  |  Page 31  |  Page 32  |  Page 33  |  Page 34  |  Page 35  |  Page 36  |  Page 37  |  Page 38  |  Page 39  |  Page 40  |  Page 41  |  Page 42  |  Page 43  |  Page 44  |  Page 45  |  Page 46  |  Page 47  |  Page 48  |  Page 49  |  Page 50  |  Page 51  |  Page 52  |  Page 53  |  Page 54  |  Page 55  |  Page 56