Eight in 10 (80 per cent) defined contribution (DC) scheme members would give up the flexibility of their savings for a higher income, while 78 per cent would do the same for a guaranteed retirement income, research from Hymans Robertson has revealed.

Hymans Robertson asked DC savers which features of collective defined contribution (CDC) appealed to them, to which 48 per cent said protection against running out of money in retirement, while 46 per cent said receiving a higher overall pension from the same amount saved.

Given the attraction of CDC to DC members, the firm called for CDC innovation to be “embraced” by the industry and government as a vehicle to address retirement income inadequacy.  

The research suggested that government backing would be “vital” to CDC’s success as 63 per cent of respondents said they would find CDC more attractive if it was actively promoted through a government initiative, while 60 per cent said they would be more positive if it was run by a government-backed pension provider.

Commenting on the findings, Hymans Robertson head of DC markers, Paul Waters, said it showed there is a “wide appetite” for CDC amongst scheme members and that a higher, secure retirement income from the same pension contribution was certainly a “compelling draw”.

He argued: “The government and the industry must listen to these results and use them to catalyse developments in rolling out CDC.

“Risk sharing and collective saving, such as CDC, will be crucial tools in the ongoing battle to improve the adequacy of pensions. 

“It’s also interesting to see that, if the government plays a role in the development of CDC, it will help gain the confidence of savers.”

Furthermore, Waters emphasised that the consultation currently under review on multi-employer CDC was an “important sign” that the government will continue to support the growth of CDC, but it would be good to see further commitment.

He also said that the new Pension Minister, Torsten Bell, should consider communicating the benefits of CDC as it would be a “crucial step” in starting to improve adequacy.

“I hope that he cuts through the noise and throws his weight behind CDC – it could be the cornerstone of improving the quality of retirement for countless people across the UK,” he added.

The research also showed that DC savers are willing to accept some of the trade-offs of CDC to reap the overall rewards, with 32 per cent stating they would accept a 1-2 per cent reduction in retirement income in some years in exchange for a higher overall pension.

Meanwhile, 34 per cent would accept a 2-5 per cent reduction of retirement income in some years to get a higher income in most but 12 per cent would not be comfortable with any income reduction in some years to get a higher overall retirement income.

In addition to this, 62 per cent of respondents would be happy with different generations receiving different amounts of retirement income, which can happen under CDC, provided their own pension is greater than it would have been through alternative pension schemes.  

“We know that CDC is not a one-way bet – the benefits come with trade-offs, and it is important these are well understood,” Waters continued.

“It is helpful to see that savers are willing to embrace the concept of CDC – even with some of these trade-offs.

“People were willing to accept the occasional year of lower retirement income for a higher overall pension and were generally accepting of generational fluctuation in retirement income levels.”

However, he said that “getting the communication right” to ensure this is “borne out in practice” would be “key”.

He added that it was “loud and clear” from the research that there is a willingness to support this pension scheme design if it delivers a higher, secure pension income in retirement than DC.

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