Commenting in response to the DWP announcement regarding a consultation around new types of collective defined contribution (CDC) schemes, Kathryn Fleming, Partner says:

"It is good to see the announcement from the DWP today that it will be consulting later in the year on different approaches to accommodate new types of CDC Schemes. While the recent TPR consultation showcased a range of measures to improve member communication, which we agreed with wholeheartedly, our analysis indicates that despite the fact that a compelling case can be made for CDC, there are still a number of areas of concern. 

“The complex task of scheme design is important and different designs can make the benefits of CDC less clear-cut for some members.  Furthermore, achieving good member outcomes during the early years of establishing a scheme is likely to be more challenging than for an established scheme in a steady state.  There is also an issue about the costs and scale of investment required for the setting up of a scheme which meets the requirements of the draft code of practice.  Finally, we believe the appeal of CDC is best suited for a niche group of employers and arrangements such as Master Trusts would be of more value and greater benefit to a wider audience.

“CDC has the scope to add value, and ultimately improve outcomes through greater education and better decision making.  The ability to pool longevity and investments to deliver more income has strong appeal if introduced in tandem with a strong communications package. However, given the scale of investment and innovation already underway in DC Master Trusts, being patient and taking advantage of those improvements could be the most realistic and straightforward course of action.”