DWP’s consultation on Retirement Collective Defined Contribution pension schemes - Which? response

The introduction of CDCs, including Retirement CDCs, presents an opportunity to improve pensions adequacy in the UK by offering consumers greater security in retirement via an income for life, higher expected returns than current defined contribution pensions, and less risk at the point of retirement by removing the burden of individual decision-making.
Although we see the potential benefits, there are still some wider questions around consumer expectations of CDCs that we want to see explored more deeply. We anticipate the upcoming Pensions Commission will fully explore the role CDCs and Retirement CDCs should play in the broader pension system and the necessary mechanisms for their delivery.
Setting aside these wider questions, we agree that to be implemented, CDCs, including Retirement CDCs, must be carefully regulated to respond to the risks they pose to consumers.
We support the DWP's overall regulatory approach for Retirement CDCs. In particular, we agree that the following are essential aspects of a strong regulatory framework:
- The bespoke authorisation framework for retirement CDC schemes, distinct from whole-life CDCs.
- Not permitting a retail market for retirement CDCs.
- Requiring retirement CDCs to be set up under trust.
- Limiting retirement CDCs to providers of Master Trusts or Unconnected Multiple Employer Schemes (UMES).

However, there also remain several issues that must be addressed before this regulatory framework is finalised. These include:
- How to meet the unique needs of initial members of new retirement CDC schemes.
- The potential impact of weak competitive pressure on fees and charges.
- Ensuring there are appropriate and effective avenues for redress available, should consumers experience harm.
- How to ensure the Retirement CDC framework interacts neatly, and appropriately, with the incoming guided retirement provisions.

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