LCP’s Taylor: Allowing age related contributions will make CDC schemes fairer for younger people and more ‘user-friendly’ to a wider range of schemes

LCP’s Steven Taylor has called for age related contributions to be allowed in CDC (Collective Defined Contribution) schemes to make it more appealing to a wider range of schemes, in response to the Pensions Minister’s comments today at the CDC Forum.

Guy Opperman today signalled his openness to extend CDC to other types of schemes such as multi-employer and master trusts and called on industry help.

According to LCP there are two key initial barriers in the current designs to wider adoption:

  • Age related contributions are not allowed, which means younger employees could be disadvantaged; and
  • Requirements on when schemes need to set up new sections are currently very strict, which is potentially a barrier to building up the scale that is necessary.

Steven Taylor, Partner at LCP, commented: “It‘s been a concern that the scheme designs available are currently very restrictive and linked heavily to the Royal Mail design. This means regulations may not currently be flexible enough for schemes that are run in a different way. This is the first time that the pensions minister has explicitly asked for help to make sure that the structure is user friendly to a more schemes.

“The regulations now in place provide key groundwork for multi-employer CDC schemes, but some adjustments are likely to be needed to prove attractive to large employer groups and their employees.

“Allowing schemes to make age related contributions would be a game changer and will make it fairer for younger people. We believe there are ways that this can be achieved without introducing new risks to schemes.”

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