Speaking yesterday (13 October) during a panel session at the Pensions UK Annual Conference in Liverpool, Aptia strategic adviser and former pensions minister Guy Opperman said with the regulations allowing for unconnected multi-employer CDC schemes (UMES) coming into force at the end of July, there are a “large” number of organisations considering the option.

“You’ve now got a large number of organisations who have been, I wouldn’t say chomping at the bit because they haven’t necessarily been rushing to do this, but they’ve been wanting to go down this route for some considerable period of time and there genuinely are a lot of them.

“If you look at some of the sectors who have had the gumption to announce a CDC scheme, like the Church of England, you look at some of the sectors who are looking at this in detail, and you have the government saying the state is also going to step into this space, that is to use a religious analogy, that is a pretty good holy trinity. If the church is saying this is a good idea, [the state is saying this is a good idea], and the private sector is saying this is a good idea, that is reassuring.”

Opperman noted the industry has “come a long way” since it began discussing this type of pension provision and added that while CDC will not be for every employer, it will have “bigger employers” involved from the outset.

“From the point of view of the actual individual organisations who are supporting it, they’re very supportive, and there is both a will and a way forward that I think is genuinely optimistic.”

Also speaking on the panel, Cambridge Judge Business School CDC Forum co-chair Harinder Mann said the industry needs to be “cautious” about some of the decisions that will need to be made if employers are considering the option, adding that from industry discussions, one of the key aspects which emerged is that savers want a “trusted system”.

“They didn’t want to start making the complicated decisions, they wanted an income in retirement. This is about what’s best for member outcomes going forward. DC will still be suitable for some people, but we’ve got to think about the first principle of to whom a pension is meant to be serving?”

Opperman added with defined benefit (DB) “diminishing” and with DC placing “huge” burdens on the savers, there is a situation where CDC can create a third option and, with the “right kinds of employers” and with “union support”, this is an alternative which “should be looked at”.

“If you build it, which we are doing, they will come and a lot of people are coming.”

Aptia head of technical research John Wilson said, while there is a CDC scheme in operation in the UK in the Royal Mail Pension Plan, there is currently no “direct” precedent for how UMES will operate both from the UK and internationally.

He said: “How I see CDC UMES working in practice is very much a combination of DC, CDC and DB. To begin with, it looks quite DC-like, as you’re still collecting, allocating, and reconciling contributions, but you’re not putting those contributions into individual pots. You’re turning these contributions into units of pension and then you have CDC, pulling off investment, longevity and expenses which potentially gives us better outcomes.

“On the other hand, it begins to look more DB-like, particularly to the members, in that you’re providing a pension and not a pot, but what you need to be very clear on is that the CDC pension is not providing a traditional DB pension, it is a target pension.”

Wilson added that when looking at the individual elements of these schemes’ design, inflation protection and “meaningful” death benefits are important to consider, and that employers will also need to consider how regulations and the pensions tax regime apply to CDC schemes.