Chintan Gandhi: This omission potentially exposes retirees to being defaulted into annuity purchase over CDC
Duties to provide defined contribution (DC) guided retirement under the Pension Schemes Bill look set to be delivered before the legislative framework for retirement CDC is in place – leaving trustees unable to select this option, Aon says.
The consultant welcomed the Department for Work and Pensions' regulations governing whole-life multi-employer collective defined contribution (CDC) schemes, which were laid in parliament yesterday (23 October) – noting they "pave the way for over 25 million UK workers to build up a CDC pension".
The government has also published its consultation on retirement CDC – but Aon partner and head of DC Chintan Gandhi said an omission may mean these schemes won't be put in place before new guided retirement duties are in force.
Gandhi said: "While it is good to see momentum building behind CDC, it is unfortunate that trustee duties to provide DC guided retirement under the Pension Schemes Bill look set to be delivered without the legislative framework for retirement CDC being in place for trustees to select this option."
He added: "This omission potentially exposes retirees to being defaulted into annuity purchase over CDC as their default income option at retirement – which will not necessarily suit everyone's needs. It also risks prospective retirement CDC providers not being able to establish sufficient scale - which appears to undermine the policy intent."
Gandhi said the was "particularly disappointing" in light of the findings from its joint research with Aegon, which revealed that there is significant demand for CDC at retirement.
He said: "Almost one in three respondents expressed a preference for a CDC pension as an alternative to drawdown and annuities. This is because CDC at retirement generally offers the opportunity to convert pot to pension more efficiently than an annuity and removes the risk of running out of money inherent in drawdown."
