The decline of defined benefit (DB) pension schemes shows no signs of slowing.  Yet there is a growing school of thought that defined contribution (DC) schemes are not well suited to all groups of UK workers.  The Freedom and Choice agenda means DC members are no longer required to use their pension pot to provide for their retirement.  However, it is impossible for individuals to know their own longevity and make appropriate investment decisions to meet their future income needs, which means drawdown leaves individuals open to the risk of running out of money in retirement.  Insured annuity purchase is a relatively expensive way to purchase an income in retirement and is becoming less popular. 

Collective Defined Contribution (CDC) schemes are designed to provide a viable fixed cost alternative to DC, which provide benefits in the form of an annual retirement income.  The rate of increases on the CDC income is variable.  The risk is collectively shared within the membership and higher benefit outcomes are expected as a result.  CDC has the potential to improve benefit outcomes for millions of workers in the UK. 

There has been much recent progress towards the introduction of CDC in the UK, and the Pension Schemes Bill 2019/20 set out a proposed legislative framework for the introduction of CDC schemes (to be referred to in legislation as “Collective Money Purchase” schemes).

Objective:

The party works on behalf of the IFoA and with other Boards / Committees within IFoA as appropriate to develop thinking in CDC and other collective risk sharing schemes, engage with external stakeholders such as DWP and the Regulator on CDC, and comment externally on CDC developments.

Outputs to date:

  • Response to the DWP’s CDC consultation on 16 January 2019 the IFoA made a press release alongside this. 
  • Analysis of CDC investment strategies vs the charge cap (February 2019)
  • Consideration of various forms of CDC which could be appropriate for UK pensions.
  • CDC workshop at IFoA Pensions Conference (June 2019). 
  • CDC presentation at IFoA Autumn Pensions Seminar (November 2019) . 
  • Meetings with DWP and the Pensions Regulator (ongoing, first meeting was February 2019)
  • Input to new CDC regulatory working group (ongoing, first meeting was October 2019)
  • Feed into CDC Bill Briefing notes for the Lords (ongoing, from January 2020)

Working towards:

  • More detailed expenses vs charge cap analysis (working with Pensions Board)
  • Feed into DWP’s considerations of appropriate viability assessment requirements under the Bill

 

Chair: Simon Eagle
Membership 11
Established 2018

 

Related documents

Contact Details

For more information about Pensions working parties contact the Communities Team.

professional.communities@actuaries.org.uk

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