This week , the Labour Party’s list of policies became one longer when shadow pension minister Alex Cunningham announced that reviving the mothballed secondary legislation to enable collective defined contribution schemes would happen under a future Labour Government.
A few months ago, such a statement would have been greeted with jocund merriment, but not in the current political climate. In case you haven’t realised, a future Labour Government is now odds on with most book-makers
I won’t go into why the Labour party are popular right now, but I’m going to explore why this policy is so deeply unpopular with the pension establishment.
Why John Lawson wants to keep things as they are
John Lawson is the ABI’s articulate roadblock to progress. Where he leads, other insurers follow – undoubtedly the ABI are digging out their dusty anti CDC propaganda. No need boys, it’s all here. Kevin Westbroom’s elegant destruction of the ABI’s previous arguments has lost none of its force over the past two years.
The ABI, John Lawson’s Aviva included, fear CDC for what it has done to them in Europe, it has returned value from the insurers to members of collective pensions. The current chaos presented to ordinary people at retirement is benefiting insurers who are supplying product without price controls and with little competition. It is a disorderly market in which only the suppliers are winning. Lawson would have it stay that way.
The ABI still own the debate – at least with the Treasury and the FCA
At a recent Retirement Outcomes workshop, I was a lone voice calling for innovation through the use of risk-sharing. I argued that the mass market of people with between £30k and £250k in pension savings were not served by the insurance industry. Neither drawdown or annuities were realistic products for the man or woman on the Clapham Omnibus.
To the shame of the FCA, my arguments were shouted down by a sneering triumvirate of Lawson, McPhail and Cameron, the wrecking crew employed to head off assaults to the status quo (aka innovation). The man from the FCA told me I was outside the scope of the current debate. Not now I’m not.
If a Labour Government get in, the cosy alliance between the Treasury, the FCA and the insurance and SIPP mafia will be challenged.
The Usual Suspects
The Usual Suspects calling for CDC include me, and I’m not a member of the Labour Party, in fact I am off to Manchester next week and will be banging the drum for CDC to any Conservative politician who can tell the difference between a pension and an ISA. I will be doing so as a Conservative Party representative for the City and Westminster (no less).
More generally, the usual suspects include Con Keating (University of Warwick), Hilary Salt and Derek Benstead (First Actuarial) , Kevin Westbroom (Aon), David Pitt-Watson (London Business School), Robin Ellison (Pinsent Masons) and Tim Sharp (TUC). I’m proud to stand besides these people.
What we have in common is many years experience working with ordinary members of occupational pension schemes as financial advisers, union representatives, actuaries and academics. We are people who independent of insurance companies, SIPP providers and fund managers. We – the usual suspects – are not being paid to befriend CDC, we do so because we care about Retirement Outcomes.
We care enough to put up with the jibes of the insurers, the dismissal of the FCA and the insults of John Ralfe. We couldn’t care less.
CDC – no threat to workplace pensions – but the default way for us to spend our pension pot.
I have said it many times on this blog, the current workplace pension savings market is working, it could work a lot better, but it is functional, competitive and has the capacity to become “good”.
CDC is a huge threat to the ambitions of the insurers and SIPP providers who hope that the guided investment pathways, promoted by the FCA will lead to their coffers. It is in the interests of ordinary people that (as Alex Cunningham puts it)
CDC pensions give members higher and more certain pensions than would otherwise be available to them. They deliver a reliable base level of income during retirement which helps members plan for their retirement, that’s them planning and taking control
Spending our pension pots collectively protects against longevity risk and reduces cost.
This will not happen overnight
Because of the foolish decision by Ros Altmann to mothball CDC secondary legislation (in 2015) we will not now have the rules finished till (at earliest) 2020. That means that many people who could have enjoyed the fruits of a CDC pension will miss out. This is regrettable but inevitable.
If a Labour Government is returned in the next few months, then 2020 is a realistic timeframe for the legislation to be delivered and product to be developed, we might see the first CDC schemes in 2021-22.
The ABI and IA and all the usual vested interests will try to push these timeframes back and I still think we are most likely going to have to wait for up to ten years, to be able to buy into a collective pension.
Nonetheless, it is hugely encouraging that the Shadow Minister for Pensions is taking the action he is and actively promoting CDC as Labour party policy.
There is an alternative use for CDC, as the logical replacement of Regulatory Apportionment Arrangements for schemes such as the Royal Mail, British Steel, Kodak, Halcrow, Hoover Candy and BHS. But that is another story and a different set of battles to fight!