Are CDC's the future of pensions?
Adrian Boulding: I love CDC pensions for their simplicity and transparency. Members are told how much income they have already bought – and in today’s money, because CDCs target annual increases that roughly match inflation.
It’s almost as simple to add on the effect of future contributions. For a workplace CDC with contributions set as a salary percentage, the simplest projections will assume that the member’s salary will rise with the cost of living. If we add up the conversion factors that the CDC uses to trade contributions for annual retirement income, we can show the member the additional pension they can expect from future contributions – again, in today’s money. This means members can compare it with their current expenditure and salary. They get a measure of their pension’s adequacy, and clarity on the effect of making higher contributions.
