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Pensions CDC and Collective Benefits

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. 

A House of Commons Work and Pensions Committee inquiry concluded in July 2018 with a recommendation that the Government swiftly enables CDC.  Following this the DWP ran a formal consultation on CDC design up to January 2019, with a proposed approach to enabling a form of CDC based on a design developed by Royal Mail Group and Communication Workers Union and their actuarial and legal advisers.  The Pensions Minister said he is “keen to bring forward legislation to facilitate the setting up of this form of CDC scheme as soon as Parliamentary time allows”.  The DWP note that in time they would be open to modification of the new regulatory regime to cater for proposals of alternative forms of CDC if there is demand.  Under the proposals, CDC pensions would be provided under trust, and an appointed scheme actuary would perform annual actuarial valuations in order to determine the pension increases, as well as performing other actuarial duties.

There is significant interest in the issue from politicians, regulators, pension providers and the media, however there is a place in the policy debate for a trusted, reliable voice, which is able to provide an evidence-based and objective view of the creation of CDC schemes.  The IFoA is well-placed to contribute to and inform debate in this area.

Outputs:

A number of stages of the party’s work are planned:

  1. The first task was to work with the Consultation Committee to form the IFoA’s response to the DWP’s consultation, for approval by the Policy and Public Affairs Board and Pensions Board.  A response was issued to the DWP’s on 16 January 2019 an the IFoA made a press release alongside this. 

  2. Analyse further some specific areas of CDC operation in accordance with the DWP’s proposals, and engage with DWP or other stakeholders on these as appropriate:
    • Governance - the actuary’s role in assumption setting,
    • optimal investment strategies,
    • best practice communications, and
    • an appropriate operational expenses charge cap.
  3. Consider professional matters relating to CDC scheme actuary advice and work with the FRC and other stakeholders on these as appropriate, for example:

    • Practising certificate requirements for CDC scheme actuaries
    • Technical Actuarial Standards for advice to CDC trustees
  4. Debate and form views on alternative forms of CDC (ie beyond that initially proposed by Royal Mail and the DWP), which could further improve the options available for UK pension provision.  If appropriate, and in consultation with other IFoA groups, publicise an IFoA view, for example via a publication of a paper and / or presentation at the IFoA annual pensions conference. 

Chair: Simon Eagle
Membership 12
Established 2018

 

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Contact Details

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

professional.communities@actuaries.org.uk

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