Pension experts have urged the government to be flexible in its approach to creating a new risk-shared saving vehicle, to ensure that a wide range of members’ needs are covered.

Responding to a consultation on collective defined contribution (CDC) schemes, which closed yesterday (January 16), consultants Aon and XPS, along with the Institute and Faculty of Actuaries (IFoA), put forward their views.

All three stated establishing a retirement saving model that shared risk throughout a broad pool of members was a positive move but warned there were pitfalls to avoid.

CDC schemes differ from defined benefit pensions in the sense that they do not guarantee certain incomes in retirement.nInstead, CDCs have a target amount they will pay out, based on a long term, mixed risk investment plan.

These schemes also differ from the traditional defined contribution plans, since they do not produce individual pension pots. Instead they invest savings in a larger collective pot, which provides an income to individuals during their retirement.

IFoA president-elect John Taylor said: “Pension savers currently face a stark choice between defined benefit schemes, which are in rapid decline, and defined contribution schemes, which place all the risk on the individual. For many years the search has been on for a viable third option.”

Mr Taylor said CDC could provide that third option but urged the Department for Work and Pensions to “ensure the legislative framework is flexible enough to allow for a range of potential designs, to ensure that CDC schemes are made available to many more workers”.

Consulting firm Aon, one of the largest in the UK, said the introduction of CDCs needed to be accompanied by new vehicles for decumulation. He said: “We believe the full potential of CDC to improve retirement outcomes will require decumulation-only vehicles.

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