Moreover, there is no need to de-risk the assets in the years before retirement. And because there are no guarantees on the amount of pension, there is no need to hold expensive capital reserves. Instead, each year, the scheme’s assets and liabilities are valued with the amount of increase adjusted upwards or downwards depending on performance. The studies show that CDC pensions will be at least 30% higher than a DC pot converted into an annuity for the same contributions. A study from Willis Towers Watson concluded that CDC pensions would be 70% higher (and 40% higher than a typical DB pension). Whilst pensions can be reduced, it would take an extreme market shock for this to happen. A study by Aon tested the CDC model over the previous 100 years. They found that pensions would only have reduced three times: after the Great Depression, during World War II, and again during the 1950s. How will family firms access CDC pensions? CDC pensions operate successfully in places like Canada and the Nordic countries. The concept was introduced
Ben Fowler Managing Director Western Pension Solutions
Workplace pensions are going through generational change. Like family firms moving from one generation to the next, the expectation is that the new generation will build upon the successes of their predecessors, learn from their challenges, and continue to grow and innovate to secure future prosperity.
into UK legislation following a dispute between the Royal Mail and the Communication Workers Union. The Royal Mail couldn’t afford its DB scheme, and the Union wouldn’t accept a DC scheme as its replacement. The solution was CDC, and the Government responded with a legal framework for employers to set up and operate CDC schemes for their own employees. Most family firms won’t be large enough to operate their own scheme, but regulations going through parliament will allow family firms of all sizes to join in a collective scheme (or Master Trust).
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