Jack Grey of Pensions Age has an interesting take on DWP’s numbers for DC and DB pension volumes
The value of defined contribution (DC) pension assets in the UK is set to reach £1trn and overtake defined benefit (DB) scheme assets by 2031, figures published alongside the Pensions Commission’s interim report have shown.
In an update that added underlying data for the report, the Department for Work and Pensions (DWP) estimated that DC scheme assets would increase from £771.8bn in 2026 to £1.03trn in 2031, and rise further to £1.24trn by 2035.
DC pension assets were forecast to overtake DB scheme assets in 2030, with DB pension assets shrinking from £1.17trn in 2026 to £923.5bn in 2030, before falling to £523.8bn in 2035.
While DC pension assets were set to rise, total private sector pension assets were forecast to decline from £1.94trn in 2026 to £1.76trn by 2035.
Insurtech company Lumera noted that, although DC scheme assets were growing, contribution levels from both employers and employees into DC pensions were typically lower than historic contribution rates into DB schemes.
This meant that the rise in DC assets would not fully offset the level of asset depletion being seen across mature DB schemes over the coming decade.
“These projections from DWP underline the speed of the current evolution taking place across the UK pensions market,” commented Lumera commercial director of data and dashboards, Maurice Titley.
“It highlights the scale of transformation that the DC market is currently undergoing and the challenge that lies ahead for providers. Millions more members are saving into DC pots at a time of rapid regulatory change, AI development and growing focus on outcomes.
“This sustained growth in the DC market is inevitably increasing demand for highly scalable, digital-first platforms capable of delivering better engagement, more efficient operations and improved retirement outcomes at scale.
“The pace of change now means operational resilience, clean data and modern technology are becoming increasingly central to how pension schemes compete, evolve and manage this transition over the next decade.”
There is one question that Maurice and I have discussed and that’s how to consider CDC from an operational point of view.
From a contribution point of view, UMES CDC is identical to any other DC master trust. It takes money from employer and employee, it can operate under salary sacrifice and must comply with HMRC with regards to income tax.
From a payment point of view, members get a monthly payment that will generally be in line with inflation but is dependent on investment and longevity experience. CDC will feel to the member very much like a DB scheme.
But between the money going in and the money coming out, UMES CDC does not sit easily with DB or DC. It will not show members the value of their pot as members don’t have their own pot (they have a pension that grows as they contribute),
Separate from Royal Mail (which does operate as a Career Average DB scheme (without the guarantees or constraints) an UMES CDC is promising a pension dependent on the timing and incidence of contributions.
I am not sure whether any systems provider or administrator has worked out whether they will be dealing with CDC as an administration challenge like DC or like DB. I’d be interested from those in the administration space how they foresee the CDC challenge.
As for the DWP, what are these numbers assuming about take up of CDC and what they reckon will happen to DB and DC assets which move to CDC to pay undefined benefits (as pensions).
It would be interesting to get a view on the impact of CDC not just on assets in DB and DC pensions, but on operations. In my opinion, we will need to consider all three classes of retirement payments separately before too long!