17 December 2009 – Publication of DWP research report 623: Employer Attitudes to Collective Defined Contribution Pension Schemes: A Qualitative Study

A report is published today by DWP which presents the findings from qualitative research with forty-five employers examining their attitudes to, and understanding of, potential collective defined contribution (CDC) pension schemes.

If enabled in the UK, these schemes would be similar to defined contribution (DC) schemes for employers as they would provide no guarantee of any level of pension and employer contributions would be fixed.  For the employee, the risks associated with a pure DC scheme could be somewhat mitigated as contributions would be paid into a collective fund and investment risk could be shared between different generations of members.  In particular they could increase certainty for members about the pension they can expect as they approach retirement. 

This research was commissioned as part of the Governments’ response to a consultation last year, which looked at a range of ways in which risks could be shared in pension schemes.  The consultation was part of the rolling deregulatory review of private pension legislation, announced in the 2006 White Paper ‘Security in retirement: towards a new pensions system”.

The main findings were as follows:

• Fixed contribution rates for employers were regarded an important feature of CDC schemes.
• Employers saw the aim of CDC schemes would be to provide greater security of retirement income.  However, as pensions would not be guaranteed, they thought the claim of greater security was somewhat misleading.
• Some employers were concerned about potential governance costs of CDC schemes and that the benefits of a CDC scheme would be outweighed by the costs of trustee management.
• Owing to the added complexities of CDC schemes, employers also doubted that trustees would have sufficient experience to manage the scheme’s funds effectively and were concerned about potential financial liability being placed on trustees.
• Employers also raised some issues over how some of the details of the scheme would work in practice and were mindful that some of the scheme’s potential features could disproportionately affect younger members.
• Employers’ reactions to CDC schemes varied depending on their existing pension scheme arrangements.  Overall, however, they indicated that although the CDC concept had its appeal they would be unlikely to consider switching to a CDC scheme unless the running costs and trustees’ liabilities were commensurate with its ability to deliver longer term stability and greater financial return.

Notes to Editors

1. The research report “Employer Attitudes to Collective Defined Contribution Pension Schemes” will be published on 15^th December 2009.
2. The research involved 45 face-to-face in-depth interviews with employers during June and July 2009.
3. The research was carried out by BMRB Qualitative Research.
4. The aim of the deregulatory review is to make the private pension regulatory framework simpler and less burdensome for employers and pension providers through a rolling review programme.
5. In June 2008 the Government published a consultation paper on risk sharing. The paper examined the case for conditional indexation and also looked at collective defined contribution schemes.  A workable consensus could not be reached on the former, and the Government rejected proposals to enable such schemes in the absence of evidence that such moves would reinvigorate defined benefit provision.
6. As part of the response to consultation (Dec 08), the Government undertook to explore further the concept of collective defined contribution schemes.

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