Published by Danny Wilding on
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The innovative solution to Royal Mail’s particular pension scheme design question is a great place to start, but I hope that the legislation permits as wide a range of CDC benefit design as possible. This should include CDC master trusts which could be used as industry-wide schemes. It should also include the possibility of a group personal pension arrangement operating some risk sharing.
I believe that risk sharing arrangements have the potential to improve overall average member outcomes. A key aspect of this is the flexibility for CDC schemes to hold higher levels of growth assets than DB schemes, and the investment opportunities available to CDC schemes compared to individually-directed DC.
“This means that where the necessary scale can be achieved to manage expenses then CDC can be more efficient than DC in delivering value to members.”
The quid pro quo is that where the necessary CDC scale cannot be expected to be achieved, then we should continue to support the best of DC instead.
As for DB, in my view the new CDC legislation will look more similar to the original legislation that applied to DB schemes. The successive tightening of DB legislation has been largely counter-productive as we now find ourselves with a relatively small DB membership with significant and highly protected benefits compared to a majority of the population with modest and volatile retirement outcomes.
lf only Government could be brave enough to recognise that this “new” CDC legislation should be retrospectively re-applied to DB schemes (particularly in relation to pension increases before and after retirement) then we could span at least some part of the current DB-DC pensions gulf. However, this will not happen, and so we can only hope that other large employers (or groups of employers) besides Royal Mail will take up the CDC mantle to ensure that future retirement outcomes are more fairly distributed than they have been in the past.