News & analysis
Appetite for collective defined contribution schemes set to grow by 2025 - survey
A significant minority of pension scheme trustees and corporate sponsors predict that their organisations will adopt a collective defined contribution (CDC) pension scheme of some description by 2025, according to a poll of around 70 organisations by Willis Towers Watson (WTW). Around one in eight (13%) of participants in a recent webinar held by the firm thought it was ‘likely’ or ‘very likely’ that their organisation would provide CDC benefits in the next six years, provided the required legislation is passed. The government recently approved plans to make CDC pensions more widely available. The findings from those polled suggest that although the majority offer an individual defined contribution (DC) arrangement for their employ- ees, two thirds (66%) would prefer to offer a pension providing a regular income throughout retirement, rather than a pensions “pot” that can be accessed flexibly.
The organisations expecting to provide CDC by 2025 currently have a range of pension arrangements in place, defined benefit (DB), DC or a mixture of the two. This indicates that initial appetite for CDC could come from employers with a variety of current arrangements - not just those with a DB arrangement and in a similar position to Royal Mail (which has committed to provide CDC when legislated for), but also those who already have some form of DC arrangement in place for at least a significant proportion of employees. Around a third of participants (34%) thought that their scheme members would struggle to understand the nature and variability of CDC pensions. This was a key theme in the Government’s response which it aims to address through a bespoke authorisation regime featuring communications strategy as a quality criteria, who said that schemes will “be required to have a robust member communications strategy”. The Government is positive about a second round of legislation to enable a variety of different CDC structures and designs such as master trusts or other multi-employer solutions, which would make CDC much more accessible for employers. Over half the participants in the poll (58%) thought master trusts would be the most suitable form of delivery for their organisation. WTW’s data shows that most organisations want to provide employees with a regular income in retirement, which suggests an appetite for CDC.
Pension Protection Fund outlines priorities for next three years
The Pension Protection Fund (PPF) has set out its vision for the next three years.
The strategic plan outlines how the PPF will continue to protect its members amid a volatile market whilst set- ting new standards.
It also confirms the PPF’s five strategic priorities. They are sustainable funding in volatile times; built for inno- vation; brilliant service for members and schemes; the best of financial and public services culture; and clear value for money. PPF chief executive Oliver Morley said that over the course of this strategic plan, the pensions’ lifeboat will set the standards for innovation, assurance and service at the PPF. “We will do this by adopting innovative approaches to our business operations including mov- ing to cloud based technology and the development of digital technologies so we can respond quickly and effi- ciently to the environment in which we operate.” Over the next three years, the PPF will continue to develop innovative digital services and explore future technical developments that will not only allow their members and levy payers use the channels that meet their needs but will allow the PPF to become agile, more efficient, productive and cost effective as their member- ship grows.
The PPF will remain prudent and maintain its current funding strategy and low risk investment approach over the course of the Strategic Plan to ensure there will be sufficient revenue and reserves to take on large schemes with significant deficits without risk to members. Despite market volatility, the PPF remains robust and on track to meet its long-term funding target to be 110% funded by 2030.
Scepticism on pension consolidation is high – PMI
The Pensions Management Institute (PMI) has revealed that two thirds of industry professionals think that DB consolidation could succeed.
The survey conducted by the institute also revealed a degree of mistrust of consolidation in the defined benefit (DB) and defined contribution (DC) spheres. Participants were not completely confident in the value of DB consolidation, as 33% of respon- dents said they do not think it is a good idea.
10 | portfolio institutional | April 2019 | issue 83
Concerns were related to the need for careful regulation and proper management, with some respondents questioning whether commercial operators would really be able to provide consolidation propositions to smaller schemes who would benefit the most. There has been much speculation around whether single DC trusts will transition into DC master trusts, but research showed that an overwhelming majority (77%) of participants think that less than half of
these schemes will make the transition. The industry outlook for collective defined contribution (CDC) was fairly pessimistic, as two-thirds (67%) of participants said they do not think it will succeed. Respondents expressed concerns that the moment for CDC to flourish has passed, as individual DC pots are now well-established. A third (30%) of participants had concerns around a lack of joined up thinking between the Treasury, DWP and the regulators.
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