U.K. sponsors eye various designs for new CDC plans

Large U.K. plan sponsors are considering different approaches to collective defined contribution plan design as the U.K. government finalizes requirements for these plans.

Consultants said while the U.K. government endorsed the CDC plan design being launched by Royal Mail Group Ltd. as one that could be replicated by other companies, the government also is eager to allow other approaches that could work under the requirements proposed July 19.

Some plan sponsors want to pursue other CDC models with different accrual rates or ones that tackle intergenerational fairness differently to the design of Royal Mail’s Collective Pension Plan that is set to launch in 2022.

In the Royal Mail model, participants will receive the same amount of benefit per pay, and each year all participants will see the same benefit increases or decreases, said Simon Eagle, senior director at Willis Towers Watson PLC in London. “This approach is likely to suit some other employers who want to provide CDC pensions, but not all. Some others could want a scheme in which each member gets a contribution of the same percentage of pay, which is then converted into a CDC pension, albeit resulting in different pension levels for each member,” he said.

“Some employers might want to share pension funding movements across employees in a different way to the Royal Mail design,” where current and future benefit increases and decreases are the same for every participant, he added.

Steven Taylor, partner at Lane Clark & Peacock LLP in London, added that many U.K. DB funds with more than a single DB plan for employees might want multiple CDC sections with different accrual rates to forestall younger participants subsidizing benefits of older participants when it comes to benefit decreases.

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