CDC for the people

infographicThe debate on Collective Defined Benefit has so far been a matter for politicians , academics and actuaries. Most people haven’t a clue what CDC is or how it might benefit or harm their retirements.

I’ve been trying to broaden the scope of the debate on this blog for two or three years, helped by David Pitt-Watson, Kevin Wesbroom, Con Keating ,Will Aitken,John Cockerton and those in my organisation such as Derek Benstead who understand the key concepts of risk-sharing, economies of scale and pooling.

On the other side of the debate are those conscious of the risks of CDC going wrong. They include John Lawson of Aviva and many within the insurance industry who inform the ABI’s trenchantly held position that CDC presents more problems than it answers.

There is a third voice, yet to be heard in this debate, but one that is more important than either the politicians, or the academics or the actuaries. It is the voice of those not connected with the financial services industry other than being dependent on it for the delivery of a decent retirement income.

Whether you like her or not, Ros Altmann is the spokesperson for this silent majority.

In my discussions with Ros over this, I am pretty clear of her views.

Firstly, she knows annuities are broken and she speaks for middle England in demanding an alternative to the current system of annuitisation which is failing at a number of levels.

Ros also knows that from an economic perspective, CDC is a more efficient way of redistributing savings from one life stage than another.

What Ros has not as yet done is find a way to articulate how CDC become a mainstream of pension provision as it is in the Netherlands and parts of Scandinavia, Jersey and other outposts of funded pensions!

The acid-test for CDC is whether it can get the traction with the readers of the Daily Mail,Express, Telegraph and Mirror who form her core constituency. Leave aside the Liberal and not so liberal academics, is there a way for Ros and others to bring CDC to the people in a way that neither creates over-expectations of return or misunderstanding of the risk?

I believe there is, but I do not think that the general British public are prepared to invest heavily in the mechanics of CDC. Instead, the debate will be conducted in terms of risk and reward and the key question will be one that I posed in Professional Pensions last week

HOW MUCH CERTAINTY DO WE NEED?

Of course this debate is nothing new, it was the debate we never properly had about with and non-profit endowments, it is the debate that should have been had between Equitable Life and its policyholders and it is a debate that surrounds much of banking.

There is an efficient frontier between risk and reward. I suggest that guaranteed annuities produce too little reward and take away too much risk, individual drawdown sits on the other side of the frontier.

If we can organise CDC as the Dutch and Danes have, we will realign pensions with the needs of ordinary people. But that process of organisation depends on a degree of engagement with the terms of the debate.

This little blog cannot do that, we need the amplification of Ros, Martyn and Paul Lewis and those other broadcasters whose eyes are on the prize. The prize is a happier Britian in retirement and to win it , we need both the right pension system and confidence among those that use it- that it works.

About henry tapper

Founder of the Pension PlayPen,, partner of Stella, father of Olly . I am the Pension Plowman
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