“I don’t need a new house – I need an extension!”



I have sympathy with the pension managers of large employers who are being expected to adopt the pension reforms. It is not their job to make Government policies work, rather it is Government’s job to make pensions work- especially for employers who are expected to stump up the money to manage and run staff schemes.

To be fair to Steve Webb, the DWP and the Friends of CDC, they are not expecting any employer to adopt collective DC plans either as an alternative to existing DB or a replacement for current DC.

DB isn’t working because it imposes impossible obligations on corporates to guarantee uncertain  liabilities but CDC is not to be an exit route.

DC is working, at least as a means of saving money efficiently, and , as 90% of us choose whatever default we are fed, DC in the accumulation is closing in on being collective.

Where the problem arises is at the point of retirement. Until recently we had a broken system of annuities but- from the employer’s point of view – it was a system that wasn’t hard. At worst employers had a moral obligation to point staff towards the open market option and perhaps invest in a few at retirement seminars- the rest was someone else’s problem.

But when George Osborne changed the tax rules so that people could – and had to- make a choice about how they spent their retirement savings, employers were in an awkward spot. With millions-sometimes billions invested in the retirement plans of their staff, employers can no longer ignore what happens next.

Some large employers have been very strident about their position, Lesley Williams o Whitbread (who is also head of the NAPF’s DC committee) has explicitly distanced her employer from any obligation for the outcomes of at retirement decision making.

Speaking at a PPI seminar last week, Tim Banks stated that there was absolutely no appetite among employers to take responsibility for the management of the financial affairs of those retiring from their employment (other than of course the DB pensioners).


I was trying to explain this to a group of European investors yesterday morning. They were looking at the opportunities to provide pension freedom to large groups of British people and were trying to work out what the link to the employer was , when people had left employment.

I struggled to find an analogy and eventually blurted out.

“If I was your builder and you asked me for a way to house my elderly relatives, I might suggest an extension (granny flat) or what the Scots call a Dower House- an outbuilding where the in-laws and out-laws could be close but not too close.

I would not suggest you demolished your own house to start again!”

Those who argue that CDC is more effecient seem to be arguing that the way to achieve effeciencies – which are principally to be earned around those in retirement, is to knock down the DC house.

Unsurprisingly they are getting short shrift – people don’t want to rip out all the hard work of the past 25 years to satisfy some clever actuary any more than people will pull down their house to make a perfect living space for the old folks.

But that is not an argument against CDC or collective drawdown (along the lines of Alliance Bernstein’s Retirement Bridge). I see Retirement Bridge as a step along the way to Collective DC, it lacking the ambition to pool mortality and dispense with individually managed accounts,

CDC is to me an “at retirement product” which is like the Granny Flat or the Dower House. It can either be an “extension” to the DC House, or something built in an adjacent premises to which an employer can direct retiring staff.

Frankly the employer need do no more than establish that the signposted scheme is (and continues to be fit for purpose). Some employers will want to take some ownership of the signposted product- perhaps supplying trustees or requesting some branding (as employers do with football grounds) but it seems unlikely that many employers are going to want to get more involved than that.

Since most employers do not have sufficient retirees to make a collective scheme efficient, these schemes will probably be open to wider groups. The constituency of the  group is up to the scheme manager but might include alumnis of colleges, former workers in certain professions, past and present members of unions or simply people who trust a certain brand.

I’ve long thought that the most trusted brand in financial services is http://www.moneysavingexpert.com and, Martin, if you’re reading this – give me a call!



About henry tapper

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