LCP’s David Fairs submits proposal for a CDC consolidator or superfund to the Pensions Commission

LCP Partner David Fairs has submitted a proposal to the Pensions Commission for a CDC consolidator or superfund.

His paper explores whether it would be beneficial for transfers to be permitted from Defined Benefit arrangements into a CDC pension arrangement and whether a CDC Superfund would be an enhancement to current end game options. 

The paper highlights that some of the advantages of DB to CDC transfer are for employers it removes underfunding risk from the employer and means CDC can be accounted for as a DC arrangement, for members it will mean a substantive increase to members benefits as well as more flexibility on how benefits are received and for Government the nature of the funding approach will mean higher allocation to growth assets and ability to invest assets for longer time horizons. 

CDC consolidation could create economies of scale allowing lower per member costs of administration and governance. Larger fund sizes will also allow access to investment opportunities and will create the governance budget to invest in a wider range of assets.  

David Fairs, Partner at LCP, commented:

“In some respects, a superfund can act as a bridge between the two options open to trustees: run-on or transferring the scheme to superfund or buying out benefits with an insurance company. Current legislation in the UK prevents a bulk transfer from a defined benefit pension scheme to a CDC arrangement. I believe that there are potential benefits for employers, members and the Government to looking at CDC as a consolidator or superfund.”