The great pensions rotation


“Everything dies honey that’s a fact, and everything that dies some day comes back” – Bruce Springsteen

DB died the day they guaranteed indexation. DA will be born the day they take that guarantee away.

Ring out the old, ring in the new!

The industry’s obsession with individual accounts has dominated the past 30 years. Despite the car-crash of annuicide (a hilarious definition of the death of DC) many still believe in the dream we can make every member their own CIO.

Their is wisdom in the crowd who have consistently voted by a 9 to 1 majority to have nothing to do with fund picking, relying on default management of their pension investments. So much for freedom of choice- “born free but everywhere in chains”?

Well not quite! We Brits have a touching faith in fiduciaries and a modest assessment of our chances of beating the market with our fund picks! The facts seem to support us as few fund pickers consistently outperform an index (even gross of charges).

So we have, through our refusal to back ourselves, made DC collective. Wise crowds that we are!

Our refusal to back ourselves is matched only by our obstinate refusal to take advice. We don’t seem to trust the fund gurus any more than we do our own hunches. While SIPP platforms are popular, even they report fund choices converge around low cost diversified funds.

It is hardly surprising then that the concept of collective benefits is back – as the marque of our Defined Ambition! 

We need defaults and we want them to work-for millions, the defined benefit system that dominated our pension landscape for the second half of the 20th century provided collective certainty. It could do so with  stable contributions from employers because the schemes had levers that could adjust benefits as markets changed.

In good times there were benefit enhancements, in poor times, benefits were limited. We got pension increases in line with the economic conditions, just like wage increases. This linkage of living standards to economic production is fundamental to the way our economic system works.

Only the State really has the capacity to tough it out, and then only with the solidarity of the taxpayer.

Collective saving is now extended to collective spending as the Government looks to mutual solutions rather than the vision of personal financial empowerment spawned by a Thatcherite crusade to individualise pensions in the mid eighties.

It is the end of an era-of a social and financial experiment that went wrong, stayed wrong and was buried in the Budget of 2014. Collective Benefits are not contrary to these financial freedoms, they are their logical terminus. While those who want a SIPP or an annuity can “go there own way” the bulk of those at retirement will be reverting to their mean, collecting pensions collectively through CDC pensions, precursed by collective drawdown.

It may not be what the financial services industry wants, but it’s what the British public demand and the sooner we get on with serving the needs of the many, the sooner we will restore some confidence in pensions.

About henry tapper

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