The industry has spent years discussing alternatives to DB and DC. Jonathan Stapleton says this dream is now closer to becoming reality with the launch of a consultation into CDC.
The industry has spent years discussing collective defined contribution (CDC) schemes but it now seems the legislation to pave the way for such plans could finally be introduced.
On Tuesday, the Department for Work and Pensions (DWP) unveiled a consultation in order to "shape future legislation" regarding CDC schemes - and is gathering views from across the industry with the aim of ensuring that collective forms of saving will deliver for both employers and employees.
The DWP is proposing that CDC schemes should be required to undertake annual independent valuations once they have been authorised to ensure that members are protected and is also mooting a ‘fit and proper' persons test for CDC trustees.
It has also put forward a charge cap of 0.75% - the same level as is set for defined contribution (DC) default schemes - and asking how schemes can best communicate with members to ensure they understand the risk that their benefits could go down as well as up, even when in payment.
The credit for getting CDC this far surely must go to Royal Mail and its union, the CWU, which have been campaigning for the government to allow it to set up and offer a CDC scheme for its employees as soon as possible.
Credit must also go to the myriad of advisers who have helped Royal Mail and the CWU - as well as to all those who have championed this sort of provision over the past decade.
CDC is not without its critics however - with some concerned about the intergenerational fairness of such plans and others fearful that the ‘best efforts' provision would be hard-wired by future governments.
And CDC is clearly not for all employers - and even for those that want to commit to such a scheme will find the time and cost needed to set such a plan up will prove prohibitive unless a third-party, multi-employer or commercial arrangement becomes available - arrangements the government hopes to accommodate in future but will not be immediately available.
Yet, while there is still much more to do, the DWP's consultation marks a new chapter in the CDC story - and that is something that must surely be applauded.
Jonathan Stapleton is editor of Professional Pensions
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