Mansion House reforms build momentum behind CDC

The findings are part of a series of polls conducted among 330 attendees of a recent webinar run by the consulting firm.

Close behind CDC was a 29% vote for the package of reforms aimed at traditional DC schemes, ahead of 16% for small DC pots consolidation, and 13% for an increased focus on value for money. 

Matthew Arends, partner and head of UK pension policy at Aon, said said the level of engagement with the proposals is genuinely significant: “Most important – and highlighted by the chancellor himself – is that anything proposed must be with the aim of securing the best possible outcome for pension savers.”

“Most important – and highlighted by the chancellor himself – is that anything proposed must be with the aim of securing the best possible outcome for pension savers.”

Matthew Arends

“This key precept lies behind the DC reforms that seek to create a framework for consolidating members’ small pots, aim to increase efficiency and traceability, and intend to enhance the focus on value for money, so that member outcomes are viewed in the round and better decisions can be reached - and not just narrowly in relation to costs. 

“Similarly, it is clear that additional ways to extract surplus from ongoing DB schemes are also of interest to scheme stakeholders – provided that the interests of members are protected, too.”

Growing momentum is welcome

Chintan Gandhi, partner and head of collective DC at Aon, said the proposed reforms have added to the momentum around CDC and that is to be welcomed. 

“The chancellor has recognised that CDC schemes have the potential both to offer better outcomes and to facilitate wider investment opportunities – one of his key objectives for the broader economy. 

“By pooling risk and aspiring – but not guaranteeing – to provide increases to pensions, CDC schemes can help navigate new forms of volatility and hold more return-seeking investments – and over a longer period – than DC and closed DB schemes.” 

Flexibility and long term horizons for DC investments

This will make the horizon for investment strategies of a typical CDC scheme longer than the lifespan of a typical individual DC member, allowing for a less conservative investment strategy over a longer period, said Gandhi. This will allow access to a wider range of investment opportunities, than is typical of closed DB or individual DC schemes, into assets such as infrastructure. 

Gandhi added: “However, CDC schemes can go further, including through investment in private equity focused on new and emerging technologies with broader environmental or social impacts – and potentially address the bigger goal of helping grow the UK’s economic prosperity.” 

Further corroboration

There was considerable support for the role CDC could play in the latestPension Playpen debate on the role of CDC in workplace schemes. 

In a series of polls at the end of the event, attendees were asked if CDC would work in the accumulation phase, to which more than half (54%) responded in the affirmative. Only 16% rejected the notion, however, almost one third (29%) declared themselves unsure.

However, there was a degree more certainty among the group when asked if CDC as a model would work for decumulation.  

More than three quarters (77%) said that it was a sound idea for decumulation and may resolve some of the deficiencies of the current system. Only 6% rejected the assertion, while 16% were unsure.