Stewart Hastie: Retirement CDC arrangements need to be available for trustees to select as their default, before guided retirement requirements are brought into force
Retirement collective defined contribution (CDC) arrangements must be available for trustees to select as their default before guided retirement requirements are brought into force, the industry says.
The industry call for alignment follows the Department for Work and Pensions' Retirement CDC Pension Schemes consultation, which closes today (3 December) and called for views on the creation of a CDC scheme to be used only by pensioners – one that would allow members to transfer their pots at retirement into a collective fund that provides a trustee managed income for life, adjusted annually based on investment performance and scheme sustainability.
Yesterday, the Society of Pension Professionals (SPP) published its response to the consultation – urging the government to ensure the timing of retirement CDC and guided retirement align.
It noted: "If the government were to introduce their guided retirement requirements on DC schemes in advance of retirement CDC being made available, schemes may not have much appetite to revisit their guided retirement options in the short term."
In its response, The Association of Consulting Actuaries (ACA) said it "strongly supports" the development of the legislation required to enable retirement CDC schemes but also urged the government to consider timing.
ACA chair Stewart Hastie said: "It is important that retirement CDC arrangements are available for trustees to select as their default, before the guided retirement requirements are brought into force under the Pension Schemes Bill. Otherwise, there is a risk that trustees will select their default from the more limited options available. This in turn could lead to sub-optimal outcomes for savers/members and could have significant implications for the likely size of the retirement CDC market."
The ACA also said it would encourage the regime for retirement CDC to be "closely aligned" with the newly introduced regime for unconnected multiple employer CDC schemes.
Hastie explained: "In particular, the process for expanding an unconnected multiple employer CDC scheme to also offer retirement CDC benefits should not include any unnecessary hurdles. While the ACA supports the introducing of cohorting new entrants into retirement CDC, we have a preference for maintaining consistency with whole-life CDC when it comes to the application of spreading cuts and the adoption of upper thresholds for indexation."
The Association of Professional Pension Trustees (APPT) also urged the government to ensure compatibility of retirement CDC with forthcoming guided retirement requirements.
Its response said: "The retirement CDC framework should also dovetail with the forthcoming guided retirement obligations on schemes."
It added: "Members should experience a coherent, joined-up journey rather than multiple overlapping or conflicting communications. A clear articulation of how RCDC interacts with trustees' guided-retirement duties—including signposting, scheme-provided pathways, and behavioural nudges—will be vital."
