The defined ambition agenda is a vague one. Steve Webb talks about wanting to give people more certainty in retirement. He’s talked about DC heavy (to and through investment strategies) and DB lite- exit routes from traditional guaranteed DB structures- the stuff we’ve had in the Queens Speech doesn’t take us much further! I’ve read some good stuff about what is going on in Denmark, Canada, Holland and Sweden. I’ve also read a lot of absolute rubbish from people who should know better. I suspect that the longer we wait for Government, the more rubbish we’ll get! Perhaps the most interesting single comment I’ve read was on a gated website – so I think this comment has therefore to stay anonymous
Hopefully it will not be a single type of scheme but allow for different designs – for example, like
(1) the Danish ATP arrangement with a low guaranteed element and a separate asset pool (within the same scheme) to target increases, which ideally might be inflation of some sort (and which will also provide any capital to cover the guarantee)
(2) the New Brunswick DC target benefits plans, which are pretty much what everyone is calling CDC just now.
and others, hopefully, if any take off.
I suggest before we go too far trying to reinvent the wheel, especially on (2) which seems the favoured approach in discussions, someone with a budget gets Paul McCrossan over here from Canada. Actuary, ex member of parliament, advisor to the Morris review of the actuarial profession, and member of the New Brunswick group of three who pretty much set out the CDC approach being rolled out there. And I believe he has had a role in all the plans which have been or are in train of being established there, including at the supervisor.
Here is someone actually making a positive suggestion about how we might organise CDC to easeUK pension issues. This fellow should be Steve Webb’s CDC Tsar!
The sooner the Government puts someone like him in charge of delivering DC with a budget to explore the DC heavy andDB heavy opportunities – the better.
Because people are working very hard at putting in auto-enrolment,meeting the “further measures for savers” demanded in the DWP Command paper, establishing the new mastertrust assurance framework and preparing for the New Annuity Framework and the Guidance Guarantee
Whatever use Defined Ambition can be put to- needs to be integrated into these reforms. It cannot compete with pre-existing options such as workplace pensions. It must offer something which is new. Right now I can see two commercial imperatives for Defined Ambition. First t we urgently need a new product that provides everyday people with small DC pots with an alternative to annuities. Second, we may need an exit route for DB plans that no longer enjoy the support of their sponsor. It is not right to talk of dismantling the taxpayer funded Government pension schemes. But it may be time to look at more radical structural reforms than we’ve contemplated so far We may not have a political consensus to do a “New Brunswick” and switch members to a target rather than guaranteed level of pension. But we need to think about what could be done with the money that might be saved if we did. Would local government offficers, firemen,policemen and civil servants flex pension certainty for pay? Would they accept a 10% pay rise in exchange for their scheme going DC? These are questions for the next parliamentary term, but they are the difficult questions about risk and reward that have to be asked Similarly, we need to put the question to DC savers.
Would you be prepared to accept some uncertainty around the payment of your DC savings in return for a higher initial pension and the prospects of future income linked to the markets?
The important thing is that there is no right answer- it will depend on individual circumstances. But it is at least a choice that can be discussed in a guidance session. At present , for those for whom drawdown isn’t available, the choice is limited to annuity or cash-out. These are the issues that our DA-Tsar can nail My worry is that if Government continues to read the rubbish appearing on twitter, pension websites and in the pensions press , those who take soundings on the popular mood, the Pensions Regulator and civil servants in Caxton House, will take fright and not lend this CDC thing proper support. So please Steve Webb, lay out your stall, publish the Draft Bill, put someone in charge, give him or her a budget and let’s get on with the job of integrating DA into the UK pensions landscape .