"Most organisations would like to provide their employees with a regular income in retirement rather than a flexible pensions pot. "
13% of pension scheme trustees and corporate sponsors predict that their organisations will adopt a Collective Defined Contribution pension scheme by 2025, according to a poll by Willis Towers Watson.
One in eight participants thought it was ‘likely’ or ‘very likely’ that their organisation would provide CDC benefits in the next six years, provided the required legislation is passed.
The government recently approved plans to make CDC pensions more widely available. CDC schemes, which are already popular in Denmark and the Netherlands, pay out a regular income from a collective fund rather than producing an individual 'pension pot'.
Willis Towers Watson's research found that although the majority of firms offer an individual DC arrangement for their employees, 66% would prefer to offer a pension providing a regular income throughout retirement, rather than a pensions pot.
The organisations expecting to provide CDC by 2025 currently have a range of pension arrangements in place - DB, DC or a mixture of the two. This indicates that initial appetite for CDC could come from employers with a variety of current arrangements, not just those with a DB arrangement and in a similar position to Royal Mail (who have committed to provide CDC when legislated for).
Around a third of participants (34%) thought that their scheme members would struggle to understand the nature and variability of CDC pensions. This was a key theme in the Government’s response, which admitted that "misunderstanding around the nature of CDC benefits will be the single biggest risk a scheme will face".
The Government plans to enable a variety of different CDC structures and designs such as master trusts or other multi-employer solutions. Over half the participants in the poll (58%) thought master trusts would be the most suitable form of delivery for their organisation.
Simon Eagle, senior drector in Willis Towers Watson’s retirement business, said: “New things usually take time to catch on. While only a minority of organisations are expecting to be part of the first wave of Collective Defined Contribution benefit provision, our data shows that most organisations would like to provide their employees with a regular income in retirement rather than a flexible pensions pot. This suggests there may be further appetite for CDC provision in the longer term.”