Today’s discussions around Collective DC pension schemes (“CDC”) highlight investment performance, and ask us to consider that pooling of the investment risk could bring better outcomes for all. In a CDC scheme, investments (particularly equity investments) can be held for longer than would normally be possible within any particular individual’s pension portfolio, thus allowing for pensions to be paid directly from investments and for individuals to delay the process of annuitising. Based on projected economic growth, and a gradual increase in the UK working age population, there might be some evidence that such CDC pension schemes could be sustainable.
However, there are still some fundamental issues with CDC. From an employer’s perspective, CDC schemes still involve greater risk in comparison to the current DC environment, and the practicalities and inherent subsidies between membership groups in pooling investments and managing or altering investment returns and fund values will need to be considered carefully. Maybe a higher priority for the time being should be to encourage the more fundamental necessity of saving as much as possible for adequate funds in retirement – pooling investment risk is a relatively smaller part of the challenge. The Government already has arrangements in place to sponsor increased saving and tax relief, through the Auto Enrolment regime. Perhaps we should allow this new regime to bed down (or even be extended), whilst also seeking greater flexibility on how an ageing population can use its savings in retirement.