CDC gets thumbs up from almost a third of savers
The research also found that two thirds (67%) initially preferred the drawdown option and one third (33%) an annuity, before they were given information about the relative features of a CDC pension.
Almost half (49%) of those who initially preferred the annuity option switched their preference to a CDC pension option.
Only 21% of those who initially preferred drawdown made a similar switch to CDC.
The CDC pension option was less likely to be chosen by those with higher than average levels of wealth.
CDC is relevant to many
Matthew Arends, partner and head of UK retirement policy at Aon, said: “Almost a third of respondents expressing a preference for a CDC pension in retirement represents a significant proportion of DC retirees.
“Although annuities have become cheaper since the survey was conducted, I think we can still expect a CDC pension to be relevant to many.
“Consequently, decumulation only CDC could be an attractive third option for DC savers, providing a distinctive alternative to annuities and income drawdown and addressing the underserved needs of a group of savers.”
“People chose CDC for its potential to deliver higher average outcomes in retirement than annuity purchase, while also providing what drawdown can’t – the certainty of an income for life.”
CDC: an appealing concept
Steven Cameron, pensions director at Aegon, said: “As automatic enrolment matures, more will have substantial pots at retirement and choosing well will be increasingly key to making the most of retirement.
“Our research findings support the Department for Work and Pensions’ (DWP) intention to advance a new ‘third choice’ of decumulation-only CDC arrangement.
“Annuities offer a guaranteed specified income for life, but in recent years have delivered an unattractively low income. Income drawdown offers maximum investment and income flexibility but risks the individual running out of money.
“The CDC pension we tested has less flexibility than drawdown but would pay a higher income than an annuity, albeit with the risk it may vary up and down depending on market and scheme performance.
“With the CDC concept appealing to almost half of those currently attracted to annuities and to almost one in five currently favouring income drawdown, this is certainly worth the DWP exploring further. However, we envisage it as an option for the individual to select, not as any form of default retirement product.”
The research, published in a white paper called Collective DC decumulation – is there demand?by both Aon and Aegon, surveyed 1,150 of Aegon’s feedback community in June and July 2022.
Of those surveyed, 80% were Aegon customers and included a higher proportion of males (62%) and those over 55 years old (also 62%).
