Collective defined contribution schemes, including multi-employer CDC, will be able to receive transfers without member consent from the end of July, but this option will not exist for retirement CDC. The government statement comes after the pensions minister recently emphasised the need for pensions to pool longevity risk. 

The government has responded to chapter 9 of a consultation on retirement CDC and said it wants regulations to move members without consent to come into force at the end of July, subject to parliamentary approval, alongside those that will permit the creation of multi-employer CDC schemes.

However, while the Department for Work and Pensions noted that members of CDC schemes have a statutory right to transfer out of the scheme until they crystallise their benefits, “we do not consider it appropriate to be able to transfer members without consent into a retirement CDC because they may not be able to transfer out if they want”, adding: “We will consider what steps if any are needed to ensure this provision does not apply to retirement CDC schemes.” 

Last year, some respondents to the consultation had queried whether members could be transferred into retirement CDC sections without consent, warning of the risks of defaulting people into an option that is irreversible. The warnings came as industry had asked government to introduce retirement CDC before new rules requiring guided retirement to ensure retirement CDC could be one of the options presented to members under this framework. 

Retirement CDC regulations will happen this year, the pensions minister told industry representatives in March. Guided retirement is due to come into force next year for master trusts, followed by contract-based schemes and single trusts a year later under the current roadmap, though the DWP is set to publish an updated roadmap shortly. 

Speaking at the Investment and Saving Association’s annual conference on Tuesday, Torsten Bell said people’s main DC pot “needs to be able to provide a pension for them, pension income. And in particular, it needs to undo one of our biggest mistakes, which is [that] we currently are not offering people a route to longevity protection.” 

He added that the state pension alone provides longevity protection for most people retiring on DC only. 

“You don't need to be an economics genius to know individuals cannot manage their longevity risk,” said Bell. “You want to pool that risk in some form. That is what providers will end up doing by default pensions.” 

He stressed that there will be no return to compulsory annuity purchases. “We're not going back to that world,” he said. “But we are not having people in systems that we have soft-mandated them into, by automatic enrolment, getting stuffed over.” 

During a panel discussion at the same event, Anne Sanders, trustee director at Zedra Governance, suggested the real issue in DC is the artificial line between accumulation and decumulation. 

“If people understood that they were going to be invested in a pension for their lifetime, that solves some of the issues that we currently face,” she said.

 

The line between DC accumulation and decumulation is today marked mainly in the fact that lifestyle default options partly or wholly derisk investments towards a selected retirement age. Some have branded this derisking excessive, saying returns are forgone as many people need to leave a portion invested while they start drawing down.
 

However, Tim Hodgson, who heads up DC platforms and retirement solutions at BlackRock, warned of sequencing risk in retirement if decumulation does not differ from accumulation, with people having no means of making up losses quickly. 

He added: “I'm not here as a massive CDC advocate, but it is a simple fact of the way whole-of-life [CDC] works is there is no retirement point for the portfolio. It is one portfolio that lives for the life of the scheme, based on the average member of the scheme.” 

But director of policy and research at Cushon, Steve Watson, said the separation of accumulation and decumulation had to be addressed for guided retirement to work. 

He argued that default options at retirement only work if people can be convinced to consolidate their pots and if the industry talks about retirement income from the beginning. 

As to how to comply with legislation on guided retirement – which will require schemes to provide “a regular income during retirement” – he said: “We don't have many tools in the tool bag to answer the exam question of guided retirement.” 

Apart from retirement CDC, there are only annuities and ‘flex and fix’, he noted. “So I think retirement CDC will be a popular choice... because there is nothing else out of those which is better to answer the exact question.”