Government needs to act quickly to cement CDC as a good option for more employers

LCP’s Steven Taylor has welcomed the new Collective Defined Contribution (CDC) regulations that were published yesterday, provided they enable the Royal Mail scheme to set up quickly. He has warned that the government will need to be flexible to make sure that it isn’t a framework that works only for the Royal Mail scheme.

There are three areas that should be addressed to make sure that CDC’s are workable for more schemes:

• There are currently limited options for sponsors who may wish to explore different benefit structures. Sponsors should be able to design more innovative contribution approaches that are fairer for younger people and reduce intergenerational cross-subsidies.
• CDC schemes also need to be more easily workable for auto enrolment purposes by allowing flexibility to build up benefits at more than one rate. This will also help to highlight to sponsors that CDC’s can be used to provide affordable benefits across the whole workforce.
• The criteria for multi-employer schemes need to be evolved. It needs to be made easier for groups of companies currently participating in group pension arrangements to have the option to move to CDC should they want to.

LCP Partner Steven Taylor commented:

"It’s great that the Government has now produced its initial framework for CDC. However, the proof of the pudding will now be not only in the successful emergence of the first scheme but also whether this helps to spur wider adoption. Given the lead times for groups to make such significant decisions, other companies will want government to now quickly pivot to meeting emerging demand from other organisations.