UK Companies Aim For Collective Defined Contribution Schemes

A number of UK companies including Royal Mail are pushing the idea of Collective Defined Contribution (CDC) schemes as a better alternative to defined-benefit pensions. According to Aon Senior Partner Kevin Wesbroom, CDC schemes create a “middle ground” where employees receive a defined amount of income while companies will have “less balance sheet risk” that could lead to events similar to the defined-benefit fiasco various UK industries are facing.

According to CDC advocates such Member Nominated Trustees co-chair Janice Turner, employees “do not have to make difficult decisions” because they can get a pension they can rely on.

One of the highlighted issues is intergenerational fairness. Using CDC, the younger generation may have to pay higher contributions to provide for retirees’ benefits in the future if business investments underperform. Another concern is CDC plans is similar to with-profit funds, which can fail with a lack of transparency.

However, Wesbrook believes CDC funds will be “entirely transparent” and will allow employees and board members to criticise fund decisions.

According to the Department for Work and Pensions, it is a “welcome proposal” and they are still looking for other options.

Worker pensions is an increasing trouble in the United Kingdom with employees at the highest risk of having no retirement benefits under a defined-contribution pension scheme. CDC schemes can produce a “third more” than the amount delivered by DC schemes.