The government must make the framework for Collective Defined Contribution (CDC) schemes more flexible to encourage greater take-up by sponsors and ensure fairness for younger members.
The government must make the framework for Collective Defined Contribution (CDC) schemes more flexible to encourage greater take-up by sponsors and ensure fairness for younger members.
Responding to the government’s consultation on CDC regulations which closed this week, legal firm Lane, Clark and Peacock (LCP) urges ministers “to iron out the creases” to ensure such schemes offer a workable and effective option for a wider range of sponsors.
It argues there are limited options for sponsors who may wish to explore different benefit structures because the regulations had been drafted with the Royal Mail’s scheme in mind.
Sponsors should be able to design more innovative contribution approaches that are fairer for younger people and reduce intergenerational cross-subsidies, LCP says.
CDC schemes also need to be more easily workable for auto-enrolment by allowing the flexibility to build up benefits at more than one rate. This will help highlight such schemes could provide affordable benefits across the whole workforce.
The criteria for multi-employer schemes needs to evolve and to help groups of companies taking part in group pension arrangements have the option to switch to CDC.
LCP partner Steven Taylor said the government needs to make CDC schemes more accessible and the “third way” between defined benefit and defined contribution schemes.
“They need to be far more flexible as the regulations as they stand are primarily based on the Royal Mail scheme,” he added. “Many company schemes won’t fit neatly into this mould and this will hinder take-up of CDCs.
“There also needs to be more thought around how the scheme design can be made fairer across the generations and ensure that younger members aren’t subsidising older members.”
