The government should ensure that the collective defined contribution (CDC) design framework is able to embrace a range of innovative and diverse options, Hymans Robertson has said.

The comments were made in Hymans Robertson’s new report, which, ahead of the expected general election this year, outlined a number of developments that the company thinks should be adopted by whichever party forms the next government.

In the paper, it argued that CDC should be approached "innovatively" and include different options, from whole of life CDC through to decumulation-only market-based CDC, stressing that innovation of the scale needed for the success of CDC will take "time, effort and ingenuity".

In particular, the report suggested that, to ensure intergenerational fairness, the government should build in design features and governance that minimise the risk of unwarranted member/employer cross subsidies and integrational value transfer, and allow for an exit strategy that’s fair for all.

It also encouraged the government to "solve the start-up phase" so that the benefits of scale flow quickly to early joiners, and to create incentives such that CDC has demonstrable advantages for UK plc and providers, in order to attract employers and providers.

In addition to this, the report stressed the need to provide regulatory certainty, arguing that regulations need to change to cater for the specifics of DC risk sharing, taking away the uncertainty that can deter would be providers.

Hymans Robertson head of DC markets, Paul Waters, commented: “The government is giving a lot of encouragement to CDC and there’s clearly a need to help savers boost their retirement income.

“CDC is an opportunity to deliver better pensions. It could help millions of savers, reduce the burden of decision making on members, share risk equitably between members and employers, and re-establish the social contract between generations.

“And the opportunity to pool longevity risk through CDC solves one of the biggest challenges facing DC savers. CDC will allow members to spend a set pot of money effectively over a time horizon that could easily be 3 years or 30 years. It offers the potential to sweat the same amount being saved and deliver higher pensions which is an attractive prize.

“However, for CDC to thrive and be inclusive for the benefit of members and employers, it needs scale and diversity which innovation can provide.

“Offering a variety of approaches would enable the power of market forces and lead to both choice and good value for money for members.

"Developing CDC as just a single plan design risks it not being adopted by the majority of schemes and could easily leading to confusion and poor outcomes for savers, by fitting a round peg into a square hole.

“The first CDC plan being launched now should be celebrated. But, as we move forward from this to developing it further, it can, and should, take different forms. UK pension schemes and their members are not homogenous.”

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