Investment consultancy Aon has launched a quiz for UK employers and pension schemes to help understand how a Collective Defined Contribution (CDC) scheme would work for them.
The online quiz – Is CDC right for my scheme? – asks 10 questions that allow those currently running schemes, whether defined benefit (DB) or defined contribution (DC), to see if a CDC pension scheme could be the right move.
Based on the answers to each of the questions, respondents can also establish which ‘flavour’ of CDC might be suitable for their circumstances, Aon stated.
Chintan Gandhi, partner and head of CDC at Aon, said: “Now that CDC schemes are a real option, we are seeing an increasing number of industries, organisations and pension schemes looking to gain a greater understanding of this innovative approach.”
He added that there is also a growing awareness that CDC “provides pension savers with access to an income for life in retirement”, and from fixed-cost DC savings – all without having to make complex financial and investment decisions.
Gandhi said that some CDC “flavours” are likely to be more appropriate for different industries, organisations or pension schemes.
The quiz starts by asking whether participants run a DB, DC or both schemes. Other questions include if participants are looking to undertake a review of their pension schemes in the next five years, if there are concerns about ongoing operating costs of a pension fund, and if a fixed employer contribution is preferred.
It also asks for the size of a company’s UK workforce and whether a company would like its employees to have an income for life.
Matthew Arends, head of UK retirement policy at Aon, told IPE that “the flavours of CDC referred to in the quiz are the potential ways that we expect CDC schemes to be established in the future.”
In summary, those “flavours” are categorised as:
- A single employer group’s own CDC scheme;
- A multi-employer CDC scheme, such as an industry-wide CDC scheme, or a commercial mastertrust offering a CDC option;
- A decumulation-only CDC option through a mastertrust, so that members transfer-in at the point of retirement to buy a CDC income in retirement.
Arends added: “In general, flavour 1 is more likely to be of interest to employers with large workforces of many thousand employees who would welcome the additional control that having their own CDC scheme would bring.”
For flavour 2, he said it is more likely to be of interest to smaller employers than flavour 1, “so that they benefit from the efficiencies of participating in a scheme along with other employers”.
As for flavour 3, it is more likely to be of interest to employers that are satisfied with their current DC pensions vehicle, but believe their employees “should have additional choice as to how they use their funds on retirement”, Arends said.
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