Under the new proposals, employees will be able to be pay into a collective pot, with the intention of increasing end pay-outs for members by decreasing administrative costs. It has been widely publicised over the last few days that this is similar to the current Dutch system.
However, pensions providers and experts do not agree over whether the schemes will be beneficial.
Joanne Segars, chief executive of the National Association of Pension Funds (NAPF), said the announcement is “to be welcomed”.
She added: “CDC schemes potentially offer employers increased flexibility and choice in how they can structure pension plans to benefit members by providing pooled risk, smoothing and greater certainty.”
Danny Wilding, partner at Barnett Waddingham, was also enthusiastic about the merits of CDCs. He said the announcement will “create space for CDCs to develop as a credible option”.
“CDC has the potential to offer more generous and stable pension returns to scheme members and act as a viable alternative to both DC and DB schemes,” he said. “The key benefit of CDC is that it strikes a more balanced share of responsibility for retirement saving between both the employer and the employee.”
However, PwC pensions partner Peter McDonald expressed concerns at how the proposals would be implemented, saying that the success of the Dutch model is “not a good reason” to trial it here.
“In the Netherlands the main reason the new plans are attractive to employers is because previous defined benefit promises can be converted to non-guaranteed options,” he added. “This wouldn't be allowed in the UK."
Sean McSweeney, auto-enrolment specialist at Chase de Vere, admitted the company has “severe concerns” over the proposed changes. He cited the main dangers as obstructing the pensions industry from investing in new propositions and decreasing people’s investment in their savings funds.
