It’s not just pension taxation that’s changing- products are!

On Tuesday and Thursday this week a Parliamentary Committee will be considering the Pension Schemes Bill. This is the Pension PlayPen's written submission to the Committee.


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Pension PlayPen submission to the General Committee reading the Pension Schemes Bill

My name is Henry Tapper, this submission is from my company Pension PlayPen. As well as founding Pension PlayPen, I am a Director of First Actuarial who are acting as expert witnesses to the General Committee.

The Pension PlayPen helps small businesses to choose workplace pensions and explain to their staff the auto-enrolment process and why they chose the pension they did. There are 1.2m small businesses still to stage auto-enrolment and 200,000 companies born each year which will have an obligation to stage from 2017.


The central focus of my work is to restore confidence in pensions among ordinary people.

Ordinary people have fallen out of love with DC pensions, principally because the products have been seen as poor value for money and the outcomes, expressed in the annuities they have purchase, have not come up to expectations,

The public is right to feel this disenchantment. The real cost of DC pension often considerably exceeds the quoted cost (the headline AMC) and the total cost including all kinds of charges that members never see, is often ruinously high.

As for annuities, they are born down by the cost of the guarantees they provide which can reduce the income they provide by up to 50%. This is not the fault of the annuity, it is perhaps the fault of regulation, but the fault really lies in the lack of awareness of the cost of a risk-free product.

While the DWP have done much to address the costs of building up a pension, as detailed in the Command Paper in March, until the consultation that led to the Pension Schemes Bill, little had been done to address the problems with annuities.

For me, and for millions of pension savers dependent on defined contribution workplace pensions, the prospect of switching our past benefits into a collective scheme without guarantees but with sound management is very attractive.

But the public debate has been about collectives becoming an alternative to existing workplace pensions in the accumulation phase. This is no longer a problem for me, I am comfortable that following the OFT enquiry last year, the problems with accumulation have largely been solved. I want a product that can help me decumulate that provides more certainty than individual drawdown but does not contain the ruinously expensive guarantees that make annuities so unattractive,

CDC- the default decumulation product

For me, the default decumulation product is likely to be CDC. My colleagues at First Actuarial (Derek Benstead and Hilary Salt) who are much cleverer than me, have showed me how CDC can be made to work so that I can understand and feel comfortable in it.

However, they cannot give me the assurance that the structure of a CDC plan will enable me to transfer my DC benefits into the collective plan and get the benefits of collectivisation. For the record I see these benefits as

  1. Economies of scale so that I can benefit from the highest quality of investment and liability management at a reasonable price
  2. Good governance to ensure that all aspects of my Plan are properly managed.
  3. A smoothing mechanism that ensures that my pension can be adjusted in bad times so that the fund is not ruined by “pounds cost ravaging”
  4. Proper reporting on the benefits (whether increasing or decreasing) so that I can understand what Is going on
  5. A promise that my pension will be paid according to the best estimates of those managing the plan till the day I die (or where appropriate my spouse dies)
  6. A clear indication of what I am likely to receive immediately and by way of increases according to the best guess of those of the plan
  7. Property rights on my pension that allow me to take my remaining benefit promise as a transfer value either as a cash equivalent and a clear statement that this will be fairly calculated
  8. The publishing of the detailed rules underpinning any risk sharing or risk pooling within the plan , how it will operate and how I can check to ensure it has applied to me
  9. The right to transfer in benefits on my own account at any time I am in the plan.


10. Benefits I can enjoy whether my employer is sponsoring CDC or not

You will notice that in this “desideratum” there is no mention of my employer. I would like the General Committee to ensure that as part of the communication of the Pension Schemes Bill, it is made absolutely clear to everyone that a CDC plan can operate independently of an employer as a means for individuals to draw a pension from their existing DC savings.


It is important that this statement is made as most comment in the press and social media has assumed that employers will sponsor these plans and without such sponsorship, the plan cannot operate. I do not believe, from my conversations with my colleagues and my reading of the Bill and from my discussions with the DWP that this is the case.

When people understand the nature of a CDC plan and that it is a place where they can take their DC pots and not see their benefits at risk from individual drawdown or their income reduced by annuity guarantees, they will want to use CDC.

I mean especially those people with smaller pots which are unsuitable for individual drawdown and produce derisory annuities. These are the people who need their confidence in pensions restoring. CDC is a product that can help that process and I urge the General Committee to ensure that the points raised in this submission are raised in the sessions.


Thank you for reading this,

Henry Tapper Pension PlayPen Ltd.       20/10/2014

About henry tapper

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