Pension scheme members could receive higher returns from collective defined contribution (CDC) schemes than from other main types of occupational pension schemes, research shows.
CDCs would on average be 70% higher than traditional DC and 40% higher than defined benefit (DB) schemes, said Willis Towers Watson, the pensions consultants.
The firm, which has published the ‘Guide to Collective Defined Contribution (CDC)’, said the boost was due to differences in investment strategy between the scheme designs.
Simon Eagle, senior director and head of UK CDC at Willis Towers Watson, said CDCs were becoming more popular and added: “One of the most compelling features of the CDC is that, because pension levels are gradually adjusted to deal with experience, the scheme can afford to target higher investment returns than in most other pensions vehicles without short-term fluctuations in pension cost for the employer or pension level for the members.”
This means that, for a given amount of contributions, for each £10,000 payable from an insured annuity bought with a DC pot, or £12,000 payable from a DB scheme, the CDC scheme would pay £17,000. This helps provide employees with adequate pension levels.
However, the firm also said that in the UK, unless CDC master trusts were available, employers would have to set up their own CDC schemes with relatively large workforces of over 5,000 to be well governed and operate largely within charge cap rules.
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