CDC market set for growth, but governance provisions could limit participation - LCP

With the consultation on multi-employer CDC schemes closing today, LCP has submitted its response, strongly supporting the extension of CDC to cover unconnected multi-employer schemes. However, the firm has also raised concerns about some of the proposed additional governance requirements for not-for-profit schemes.

LCP views this extension as an essential next step for the development of a UK CDC market, which could have a transformative impact on members’ retirement options. Previous LCP research has suggested that CDC could lead to member outcomes up to 50% better than a traditional DC scheme that annuitises.

LCP also believe that following significant previous informal engagement with industry, the majority of new actuarial and investment provisions covered by the consultation will significantly improve the CDC benefit structures available in a multi-employer setting.

However, LCP has flagged potential challenges in the proposed governance framework, particularly around the role of the Scheme Proprietor, as well as marketing and communications. The firm warns that, if left unamended, these provisions could deter non-commercial operators from entering the market.

Steven Taylor, LCP Partner and Head of CDC commented: 

“We are very excited by the extension of CDC to cover whole of life unconnected multi-employer schemes. Ensuring CDC schemes have the right level of governance will be essential. However, it’s just as important to strike the right balance so more members and employers can benefit from the advantages CDC offers.”

Helen Draper, LCP Partner added:

“While the new requirements for Scheme Proprietors are a positive step for commercial schemes, the current description of the role does not extend well to situations where an existing defined benefit Trust seeks to open a new CDC section. This could limit opportunities for these members and employers, and we believe a more flexible approach is needed.”