NAPF Investment Conference 2014: Collective defined contribution could be a way forward for schemes trying to "give members what they want" and avoid burdening them with decisions, said Diageo's director of pensions.
CDC means you stop making investment decisions, and that’s a big challenge for people
Stuart Stephen
CDC is a natural progression for people thinking about how they can get members to save more and think about the investment choices available to them said Stuart Stephen, director of pensions at the drinks company, at the National Association of Pension Funds' conference.
“Just making it more seamless, making it flow better, that would work for people because they know somebody’s looking after a lot of the decisions,” said Stephen. “CDC means you stop making investment decisions, and that’s a big challenge for people.”
The proposals for defined ambition all have merit, said Steve Charlton, DC proposition manager for Europe at Vanguard Asset Management.
But he added: “One of the things that might cause us some issues is how it fits into a regulatory framework and what that might mean for the communications that a member might see.”
Members know what outcome they want, Stephen said, but they need help from scheme management in trying to achieve that.
“It’s about providing people with tools that they can use,” said Stephen.
Thirty per cent of members want someone to tell them how much they need to save for retirement, while 73 per cent were concerned that their state and company pension would not provide them with an adequate retirement income, according to a 2012 survey by the Pensions Regulator.
“It also has to be quite realistic, it has to show to people that as you get [towards retirement] you’re not going to get to where you want to get to,” Stephen said.
Members need help with making decisions on how much to save, how to invest, when to derisk and to explore their at-retirement options, he added.
However, defaulting on those investment choices "may not be bad decisions”, Stephen added.
