The ability to provide payments in retirement is already possible. “The next challenge is to develop investment strategies that can provide an income that is sustainable to members in their nineties and beyond,” Charlton says. And there is a regulatory wrinkle to the introduction of CDC. It may well require additional legislation in an already complex pension landscape.
Frank says: “Introducing yet another system compounds an existing problem of frequently shifting regulatory goalposts.”
It was hoped to be a straightforward process. CDC could have been introduced under the Pensions Act 2015, which introduced the concept of a defined ambition pension. This would have meant only secondary legislation was required. Wesbroom says: “That seems to be more of a task than originally envisaged.
“Lawyers are now looking at modifications of existing DC legislation to introduce CDC, again though secondary legislation, as it does not have to occupy space on the floor of the House of the Commons, which will be preoccupied with brexit,” he adds.
But others think it will still be complex. Part of the problem is there are multiple definitions of CDCs. Frank says: “If you asked 10 people how they would define CDC, you will get 11 different opinions.”
That makes drafting secondary legislation complex. First CDC needs to be clearly defined and then the rules need to be correctly drafted.
Frank says: “Even if the government was not tied-up in brexit negotiations, this would not be straightforward legislation to introduce.”
Hopkins agrees. “There is no way CDC can be shoe-horned into existing DC regulation; it will require a specific governance framework,” he says.
It will also require the regulator to develop a whole new system to ensure there are good member outcomes. That may well be a challenge too far.
Hopkins says: “The regulator has only just got to grips with what it expects from good DC schemes and started to see compliance with those goals.”
Progress is now being made on outcome-based governance and setting realistic objectives. Hopkins concludes: “Time and effort has been invested in improving DC which should not be derailed by introducing a new CDC regime.”
