CDC: finally off the starting blocks

This is a milestone for TPR as the introduction of CDC pension funds could have a significant impact on the UK pensions industry.

One of the key benefits of CDC pension funds is that they can provide more certainty for pensioners than traditional DC schemes. Another, is that they can provide economies of scale. By pooling contributions and investing in a single fund, CDC schemes can benefit from lower investment costs and greater bargaining power with investment managers. This could lead to lower fees for members, improving the value of their pensions.

Additionally, the Department for Work and Pensions is consulting on extending opportunities for CDC schemes to be set up for groups of employers who are not legally connected.

However, there are also potential drawbacks to CDC pension funds. One concern is that the formula used to calculate pensions may not be flexible enough to take into account changing circumstances, such as inflation or changes in the economy. This could lead to pensioners receiving pensions that are either too high or too low, depending on the circumstances.

Another concern is that CDC schemes may be more difficult to manage.

The impact of CDC pension funds on the UK industry will depend on several factors. If CDC schemes prove successful, they could become a popular alternative to traditional DC schemes, particularly for large employers. This could lead to a shift away from individual DC schemes, with implications for the investment management industry.

However, the introduction of CDC pension funds is unlikely to be a panacea. CDC schemes are not a one-size-fits-all solution, and they may not be suitable for all employers or all employees. Ultimately, the success of CDC schemes will depend on a range of factors, including the investment strategy of the fund, the demographics of the workforce, and the regulatory environment in which they operate.

Venilia Amorim, Editor, IPE.com
venilia.amorim@ipe.com