The government's plans to extend collective defined contribution (CDC) schemes have been broadly welcomed by the pensions industry, although experts have raised concerns around the need for member protection.

The government previously launched a consultation on plans to extend CDC to accommodate multi-employer schemes and offer greater design flexibility, also looking at the potential of CDC as a decumulation-only option.

In its response, the Association of Consulting Actuaries (ACA) welcomed the Department for Work and Pensions' (DWP) consultation, arguing that whilst there is a packed legislative timetable, further development of CDC should be high in government priorities.

However, the ACA noted that there are some key changes that the government should consider, including more closely aligning the application of the charge cap with DC, and making existing legislation more flexible.

In particular, the ACA suggested that designs that can vary accrual rates or contribution levels should be allowable within a single section as long as actuarial consistency is maintained.

It also argued that the winding-up process should be simplified, recommending that the preferred approach would be based upon members’ benefits being de-collectivised as the point that wind-up commences.

ACA chair, Steven Taylor, said: “Timing is now of the essence to build up critical mass for CDC.

"This means that in bringing its plans to fruition, government should take great care take not to impede timely development of multi-employer models that are very similar in nature to schemes now possible under the single employer model and so would require only minor regulatory change.

“Whilst there is a packed legislative timetable, further development of CDC should be high on government priorities for the coming year.”

This was echoed by the Society of Pension Professionals (SPP), which argued that while combining the existing CDC regulations and those that apply to DC master trusts is a sensible suggestion, "some tweaks will likely be needed".

In particular, the SPP suggested that, when extending the existing regulations, it will be important to ensure that the regulatory environment is supportive of sensible member decision making, given the additional challenges introduced by multi-employer and commercial offerings.

"This is likely to encompass some level of regulatory oversight of marketing communications, member charging structures and actuarial conversion or pricing terms, as a minimum," the SPP continued.

"Such an approach may require the existing supervisory regime to be enhanced, which could require additional expertise and resource within The Pensions Regulator (TPR)."

The SPP also argued that consideration should be given to whether the legislation could enable individuals to join master trusts or multi-employer vehicles without the need to have an employer linked to the scheme, noting that there are difficulties with individuals accessing these opportunities of their own accord under the existing framework, particularly for those who are self-employed.

WTW also stated that whilst it is supportive of the plans to extend CDC to allow greater design flexibility, this is subject to there being sufficient protections to ensure robust designs and to support sensible employer and member decision making.

“We agree with DWP that it will be important to protect members within a decumulation-only CDC environment, since each member will need to make their own decision at retirement as to whether to purchase CDC income," WTW CDC director, Shriti Jadav, stated.

Standard Life managing director of individual retirement, Claire Altman, also suggested that the government is right to tread cautiously, "not least to ensure that CDC schemes will be sustainable and that proper protections are in place if things don’t go as expected given the expectations CDC schemes could raise with savers".

“It’s important to think about CDC in the context of the wider range of options and what these can achieve - there is a lot happening in the at retirement space," she continued.

"The end of the era of low interest rates has made annuities a more attractive option for those looking to secure a guaranteed income and this is a welcome development, since over three quarters (78 per cent) of people tell us they want income certainty in retirement.

"Furthermore, thinking has moved on in favour of a more blended approach that allows people to achieve the best of an annuity and drawdown.

"We expect to see significant innovation and product development over the next couple of years, and welcome CDC being part of the pensions saving toolkit.”

Plans for decumulation-only CDC have received particular focus, as Jadav revealed that "from engagement with our clients and the wider industry we believe there is particular interest and greater potential to reach more individuals through decumulation-only CDC, as a new option at retirement for DC retirees".

Indeed, recent polling by WTW found that 93 per cent of repondents thought decumulation-only CDC would be of interest to DC retirees, and 79 per cent would want to facilitate it for their scheme members, with 72 per cent keen to link up with a CDC master trust while the remaining 7 per cent aim to do this through their own scheme.

“Whole-life CDC is closer to the initial CDC regime in force and so is perhaps easier to introduce - we would like to see the government taking forward regulations that enable new designs for both whole-life and decumulation-only CDC, in order to maximise access to CDC," she added.

Adding to this, LCP partner, Steven Taylor, agreed that there are potentially some additional complexities for “commercial” or “decumulation only” CDC schemes, which may require further regulatory consideration.

“In time, we agree that more commercially focussed schemes should be developed, with “decumulation only” arrangements a natural home for many millions of today’s savers who have only known DC," he continued.

"We also believe there is a strong argument for the set up or appointment in due course of a default CDC scheme, perhaps similar to NEST for the DC world, which could also be available for decumulation purposes.”

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