Collective Defined Contribution pensions could play a crucial role in the ongoing battle to improve the adequacy of pensions, says Hymans Robertson.
It said its latest research shows growing appetite among pension savers for CDC, with 80% of defined contribution scheme members willing to give up their flexibility for a higher income from their pension.
A similar proportion (78%) would give up flexibility in exchange for that retirement income to be guaranteed.
The research also explored which features of CDC appeal to savers. Protection against running out of money in retirement (48%) topped the benefits, followed by receiving a higher overall pension from the same amount saved (46%).
Hymans Robertson is calling for CDC innovation to be embraced by the industry and Government as a vehicle to address retirement income inadequacy.
Nearly two thirds (63%) of those surveyed said they would find CDC more attractive if it was actively promoted through a government initiative and 60% said they would be more positive if it was run by a government-backed pension provider.
Paul Waters, head of DC markets at Hymans Robertson, said: “Our research shows that there’s a wide appetite for CDC amongst scheme members. A higher, secure retirement income from the same pension contribution is certainly a compelling draw. 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 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.”
Waters said 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 called for further commitment.
“Communicating the benefits of CDC will be a crucial step in starting to improve adequacy and something the new Pensions Minister should consider. It could be the cornerstone of improving the quality of retirement for countless people across the UK,” he added.
Hymans Robertson said the research also showed that savers are willing to accept some of the trade-offs of CDC to reap the overall rewards, with 32% willing to accept a 1-2% reduction in retirement income in some years in exchange for a higher overall pension. A further 34% said they would accept a 2-5% reduction of retirement income in some years to get a higher income in most. Meanwhile, 62% said they would be happy with different generations receiving different amounts of retirement income, provided their own pension is greater than it would have been through alternative pension schemes.
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