The premise for this roundtable, hosted by the UK Institutional Team at Natixis Investment Managers, is to assess the potential of CDC in the UK, drawing on the experiences of the Dutch following the closure of their Defined Benefit (DB) schemes and subsequent move to CDC.
What are CDCs – and why the interest in them now?
CDCs are collective plans where the employer and employee contribute – much like normal DC, but with all the assets are pooled rather than each member having an actual or notional pot of money earmarked for their benefits. Investment risk is shared between the members and an income payable at retirement is declared depending on the success of the schemes’ overall investment strategy.
Earlier this year, Royal Mail reached an agreement with the Communication Workers Union to allow a CDC scheme to replace its DB scheme, which closed at the end of March 2018. This type of scheme provides a more paternalistic approach with shared investment risk between the members.
The theory goes that the collective nature of investments across CDC members may lead to better investment returns, and therefore better retirement outcomes when compared with individual DC plans. However, the key risk to members of a CDC scheme might be one of intergenerational fairness – the first cohort of members in receipt of a pension may receive more (or less) than subsequent generations.
How will CDCs impact the future of UK retirement?
With a number of high-profile institutions in the UK beginning to look to CDC as a possible answer to the big pension questions, this will be an opportune moment to debate its future in the UK retirement space. The panel will feature distinguished Dutch and UK industry professionals from global consultancies, law firms, industry bodies, master trusts and high-profile pension schemes.
The debate will cover a range of topics, including:
- The different investment strategies that a CDC scheme might take in the UK
- The implications for pensions ‘freedoms’ and choice, and how they might work in a CDC scheme
- The potential for intergenerational cross-subsidy – and how to allocate annual performance surplus/deficit
- The impact on scheme engagement and participation
- The potential communication challenges for sponsors
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This communication is for information only and is intended for investment service providers or other Professional Clients. The analyses and opinions referenced herein represent the subjective views of the author as referenced unless stated otherwise and are subject to change. There can be no assurance that developments will transpire as may be forecasted in this material.