The NAPF CDC Debate
The debate on how we organise our retirement incomes from our pension savings was not progressed at the NAPF’s CDC focussed pension connections meeting last night.
A half filled room witnessing a debate between two “Pale Male and Stales” was never going to set hearts beating and predictably we got a peremptory dismissal of CDC as “magic beans” from one participant and a limp eulogy for a vision of pensions that faded in the nineties, from the other.
That I can’t report names is because there was, apparently, a no-tweeting, Chatham House policy in place. For the sake of the participants this is just as well. The world outside the NAPF’s offices would have fallen asleep had they been forced to sit through that drivel.
What’s that coming over the hill?
To address the question in hand …
CDC has a natural place among the pension options available to those with DC pots and past 55.
If set up as a Regulatory Own Fund (Rof) like the PPF , a CDC scheme will be able to take your various DC pots as transfers and offer you a lifetime income stream in return.
Pound for Pound, the offer will be higher than annuities (though it will not be guaranteed).
Unlike using an individual drawdown policy, a transfer into CDC will not require you to do anything to monitor and manager your income, you will not be required to take investment decisions, you will hand over the reins to fiduciaries who will do that for you.
Wrong monster – John
“Fiduciary” is a latin word meaning “those who we trust”. CDC relies on us trusting others to do what they say. The chief tactic of those who attack CDC is to deny that we have any trust left. And yet millions of working people trust fiduciaries to pay them pension benefits. Were trust to be taken away we could label all defined benefits schemes including the state pension and the unfunded and funded taxpayer sponsored Government schemes no more than Ponzis.
The reality is that we all trust experts to pay us pension benefits, even the experts trust other experts because no pension expert can be expert in everything. Pensions are about future promises many years hence- without trust there can be no pensions and without pensions , we have no financial security.
CDC is the trusted means by which those who want a decent retirement stream from a trusted source will spend their retirement savings.
Wrong hill – Hamish
CDC is not going to work as a mainstream alternative to DC accumulation. Not because it cannot do so, it can. But we have a fit-for-purpose means of building up capital prior to spending it which is working very well. Ripping out your kitchen a couple of years after installing it isn’t the answer and ripping out workplace pension schemes no sooner than you’ve converted them for auto-enrolment isn’t the answer either.
There may be a purpose for CDC as an accumulator later (think New Brunswick) but that’s not on today’s agenda.
Where employers are concerned is at retirement. They have worked out that we have gone from an at retirement regime where we gave no choice (annuities) to one where we give people freedom to choose options many of us have no wish or ability to buy. I don’t want to swap retirement security for a Lamborghini and I don’t want to spend hours worrying about the investment of my saving and how I cope with living too long.
There are many people who will want to self-manage their savings but I’m not one of them and I suspect that in their heart of hearts, most people, were a fiduciary solution available, would choose it.
Another chance goes a begging
What is so frustrating about debates like last night’s is that they force people who are interested to listen to people who aren’t interesting. The PMS brigade must move on and allow some fresh thinking.
Employers, Trustees, Master-Trustees, IGC,TPAS, MAS and any other agencies sign-posting people at retirement need a safe-harbour option for the people who don’t want to do it themselves , who aren’t reckless but ordinary decent folk wanting a long-term income stream in retirement.
The vast majority of DC pots and the majority of DC capital is not in your employer’s scheme, it is in schemes from past employers or in your personal pension you set up yourself. What use is your current employer to you with regards to this money?
The NAPF and those who speak for it continue to couch the debate in terms of the employee/employer relationship but in truth it’s not. At retirement you are on your own, standing looking up the road to see what’s coming over the hill.
Let’s make sure it’s the right kind of a monster on the right kind of hill.
This blog first appeared on http://www.pensionplaypen.com .. a bit male- not pale or stale!