Retirement Collective Defined Contribution schemes have potential to transform market but education and trustee guidance is essential

In their response to the Government’s consultation on Retirement Collective Defined Contribution schemes, LCP have said that while it has the potential to transform the retirement market, it needs to be accompanied by a strategy to educate people about their retirement options and as well as detailed guidance for DC scheme trustees.

The consultation, which closes this week, seeks feedback on proposals for a new type of Collective Defined Contribution (CDC) scheme, designed exclusively for retirees. Under this “Retirement CDC” model, individuals can transfer their Defined Contribution (DC) pension savings at retirement into a collective fund.

LCP believe it can be a beneficial product for the retirement market by allowing people who have saved in DC during their careers to access CDC at retirement. However, they are urging the Government to develop a strategy to educate people about retirement products and CDCs as they believe it can only be successful if people approaching retirement know about its existence and understand the basics.

Other key things that LCP included in their submission are: 

• With Guided Retirement and the emergence of “retirement CDC”, trustees’ roles seem set to evolve to significantly increase focus on at retirement process and supporting members throughout retirement. LCP believe that this shift needs to be supported through clear guidance for DC trustees.
• Retirement CDC schemes are currently likely to launch in the next two to three years, after the introduction of Guided Retirement requirements. This means they may not be fully included in the first wave of pension strategies. Trustees need clear alignment on timing so Guided Retirement pathways are set up with all options in mind. The Government must provide early guidance on how schemes should factor in CDC and commit to ongoing market reviews to keep strategies relevant.

Steven Taylor, Head of CDC at LCP, commented:

“CDC at retirement could be a game-changer, but only if people understand it. Engagement with pensions outside the industry is low, and that makes introducing new options a real challenge. If we want CDC to succeed, we need a clear education strategy so savers know what’s on offer and why it matters.”

Donna Matteuci, Senior Consultant in LCP’s Pension Research team added:

“This is a new product, and it should not be entirely the responsibility of trustees, employers and the advisory community to explain the concept to savers. Similarly, trustees and employers themselves are likely to also need Government guidance to understand and make use of CDC schemes.”