Confidence in collective defined contribution (CDC) pension schemes being widely adopted across the UK remains low, despite accelerating regulatory and legislative momentum, analysis from Sackers has shown.

Its survey found that 61 per cent of pension professionals were not confident that CDC schemes would garner significant uptake.

Respondents were asked which aspects of CDC arrangements could prove to be the most challenging to communicate, with 48 per cent believing that all aspects of the model that Sackers had outlined would be difficult to explain.

More than a quarter (26 per cent) identified the possibility of retirement incomes falling as the single factor that would be the most challenging to communicate to members.

Sackers partner, Andrew Worthington, said the findings suggested that the greatest challenge facing CDC pensions was not the model itself, but familiarity with how it works.

“As a new approach for the UK pensions market, building confidence will take time, like any innovation,” he continued.

“It's also notable that many respondents highlighted the possibility that retirement income could reduce as a key concern.

“In practice, retirement incomes under DC are already uncertain, fluctuating with market performance and individual decisions.”

Worthington argued that CDC had the potential to become an important third option alongside defined benefit and DC, giving employers certainty over contribution costs while providing members with the benefits of collective investment, risk pooling and the prospect of a more predictable retirement income.

"Similar CDC models have been operating successfully overseas for many years, demonstrating that they can deliver good outcomes for both employers and members,” he stated.

“The UK now has the opportunity to build on that experience, but continued government support, practical regulation and increased real life experience will all be essential if CDC is to fulfil its potential.

“Recent government announcements mark important progress towards wider adoption. They have listened to industry concerns about implementation and announced a possible easement to the new guided retirement proposals where schemes are actively considering retirement CDC as their default option.

“This momentum will need to continue as CDC cannot succeed through single employer demand alone; it needs policy leadership to build confidence and encourage wider adoption.

“The additional flexibility being introduced to help new UMES CDC schemes navigate the authorisation process should also support innovation while maintaining appropriate safeguards.

“Supporting employers, trustees and advisers as they consider whether CDC is right for their circumstances will be important in helping to build confidence in the model.”

This article was first published on our sister website, Pensions Age.

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