TISA urges safeguards and fairness tests for new Retirement CDC schemes

The Investing and Saving Alliance (TISA) has called on the Department for Work and Pensions (DWP) to ensure proposed Retirement Collective Defined Contribution (RCDC) schemes include clear member communications, create fair outcomes for all and place no expectation on schemes that they should be used as a default option.

In its response, TISA welcomes the addition of RCDC within a Guided Retirement framework but warns that consumers could be locked into unsuitable products or unfairly subsidise others if schemes are not carefully designed and governed.

Renny Biggins, Head of Policy – Retirement and Products at TISA, said:

“RCDC can be a valuable addition to the pensions landscape, but only if it is built on fairness, transparency and genuine choice. For many savers, moving into an RCDC arrangement will effectively be a one-way decision, so they must clearly understand both the benefits and the risks before anything happens.

This is often referred to as an option which can generate significantly enhanced returns compared to annuity and drawdown, but this is not guaranteed and independent research conflicts with this. The target market should be influencing investment strategy for these schemes, and that will largely be determined by pension scheme decision makers.

The way in which default decumulation options are positioned within the Guided Retirement journey will be crucial to ensure we avoid any situations where consumers achieve bad outcomes.”

TISA’s response outlines that Government and industry should:

• Consider RCDC together with Guided Retirement, with clear explanations for consumers of potential benefits, risks and lock-in.
• Clarify how actuarial fairness will be achieved without underwriting, to prevent poorer-health, members subsidising healthier ones.
• Ensure any RCDC default uses an investment strategy aligned to the target market identified by trustees and Independent Governance Committees.
• Allow retail schemes to offer RCDC to avoid inconsistent outcomes for other retirement savers.
• Ensure schemes are not expected or pressured to offer RCDC as a default and that they only do so where it is genuinely suitable.