Employers key to expanding collective pension schemes

Panelists at the Pensions UK Annual Conference emphasized that collective defined contribution (CDC) schemes depend heavily on employer participation for viability. Multiple stakeholders, such as trade unions, companies, and government bodies, are actively assessing CDC as a way to enhance traditional defined contribution (DC) frameworks.

A survey of attendees revealed that 53% viewed insufficient employer demand as the primary obstacle to implementing CDC schemes. John Wilson, who leads pensions technical at Aptia, disclosed that his firm is evaluating whether introducing a CDC arrangement would suit their administrative staff.

One in three participants at the event indicated they were currently assessing the viability of adopting CDC structures. Harinder Mann, co-chair of the CDC Forum at Cambridge Judge Business School, noted that while many employers are considering CDC, they are holding off on discussions with unions until timing feels appropriate.

Mann emphasized the importance of education and understanding what CDC entails, particularly for those in the private sector. Wilson noted that employers are wondering where auto-enrolment contributions will go and how much more it will cost the business. They are considering the potential impact on their operations.

Guy Opperman, a former pensions minister who facilitated the initial CDC legislation allowing the Royal Mail’s scheme to commence in 2024, expressed optimism about CDC’s future growth. Drawing from international experiences, he pointed out that effective CDC implementation can support employee pride in their organization.

Opperman highlighted the staff retention aspect of a potentially improved pension offering. He believes that there is a real change in certain parts of the economy and society, and that CDC can support this change. This change can lead to a more stable workforce.

The panellists were confident that CDC would become a mainstream offering over the next few years. Mann posited that as much as two-thirds of pension savers could be in a CDC scheme in 10 to 15 years, while Opperman put this at around 20%. These predictions indicate a growing interest in CDC schemes.

Nearly 73% of attendees predicted that multi-employer CDC frameworks would materialise in some capacity over the next five years. Following Royal Mail becoming the first company to introduce a CDC plan in 2024, regulatory guidelines supporting multi-employer schemes have been completed, paving the way for broader adoption.