Are you feeling DC sick?

DC sick

We’ve all been there!

Joy for DB is pain for DC!

ppf good

DB looking good (according to PPF)

equities one month

FTSE 100 – one month – feeling a little DC sick?


I am sure I am painting too simple a picture and that I’ll be whacked over the head by my learned colleagues, but the general jubilation breaking out over UK pension scheme solvency levels, is coming at a time when the average DC investor is suffering a “market correction” wiping as much as 10% off their market savings.

I believe this is called a barbell, what is good for Peter is bad for Paul and vice versa.

It’s a bit like Boris Johnson wanting everyone to enjoy Brexit, even if for the remoaners , it’s a pain in the bum. I don’t need people whooping it up in the land of the perpetual gilt (on the road to buy out) , when I’m trying to get on with business as usual!

Business as usual for me is the incredibly boring world of FABI, where funding levels do not jump up and down because Mark Carney breaks wind over monetary or fiscal policy. FABI is based on real world economics, what people make and how companies prosper, rather than the seemingly arbitrary decision of the Bank of England or the Fed.

As a DC investor, I am into patient capital, I am 56, I don’t want to start drawing down till my appetite for earning diminishes (and it’s showing no sign of diminishing). Consequently, what happens to interest rates is of no consequence to my pension.  I’m looked after by my former employer (thanks very much Zurich Financial Services) – I’m very happy for them if they are a bit more solvent but I was even more happy when they carried me through periods of insolvency.

So I’m alright Jack – but what about the rest of us!

I do appreciate David Robbins tweet .

Higher yields produce lowest aggregate s179 deficit in nearly four years. But headline £51bn shortfall = £174bn of deficits minus £123bn of surpluses. £174bn arguably more relevant for potential PPF claims.

— David Robbins (@David_J_Robbins) February 13, 2018

If David is worried about the impact of those schemes in deficit going into the PPF, then he should remember that those in DC have just taken a PPF style haircut (10% off) in one month!

And if he’s worried about the financial resilience of the PPF, he should remind himself (I’m sure he does) that the biggest winner from the recent uptick in gilt yields, will be the PPF itself, which is inexorably heading for self-sufficiency at a heady rate.

As we in the Friends of CDC maintain, the PPF looks like a very ugly CDC scheme right now, ugly in that it is full of ugly assets , but friendly as it is going to pay out pensions to millions of people in the most efficient of ways.

DB has a strong chin!

The DB world, and especially the PPF, can look at that  £123bn shortfall with the calm eye of a champion boxer;

“give me your best shot”,

knowing it’s got fitness, a strong chin and resilience!

Because of strong DB schemes (like the one I’m in – praise be!) and because of the PPF, we have a lot of people in this country who have certainty of a supplement to their state pension. They are the lucky people with a DB promise. I am one and I thank goodness I am.

But DC does not know how to cover up!

As said before , I’m not worried that I’ve lost 10% of the paper value of my DC in a week, there are ten years plus of work in me yet!

But there are many I know, including those I’ve met through working with BSPS members, who do not have any way to cover up. If you are in an equity based DC scheme, especially in drawdown, you are hurting. If you are about to drawdown for whatever reason and are in equities, you are in an uncovered position right now.

I am sure most people reading this blog, are able to live with that, but it’s the people who don’t spend time reading pension blogs (eg 99.99% of the population) who I am worried about.

We need to think about them – just as the CWU have been thinking about the 142,000 postal workers. For while the Royal Mail DB scheme , is safely tied up in the harbour (close to 100% gilt funded – immunised from stormy weather), those in DC are taking a right pummelling from the financial storms.

Former DB members of Royal Mail are being offered a CDC alternative, one that pays a wage for life , not a “pension pot”. They can rightly look forward to a pension – albeit a pension that is to a degree – market related.

Those who have and are transferring out of DB schemes have no such prospect (yet). those who are being shoved into DC schemes (as those in USS and BT are about to be) have no such comfort.

Feeling DC sick?

So while I am happy that DB is looking more secure, while I am comfortable that the PPF is heading for self-sufficiency, I am not happy or comfortable for most people in DC. Most people in DC are feeling DC sick right now, having been tossed around by the market for the past couple of weeks.

If you are DC sick and want some relief – come and join the Friends of CDC!


target pensions

About henry tapper

Founder of the Pension PlayPen,, partner of Stella, father of Olly . I am the Pension Plowman
This entry was posted in CDC, pensions and tagged , , , , , , . Bookmark the permalink.

3 Responses to Are you feeling DC sick?

  1. John Mather says:

    Sorry to see the rejoicing at the fall in value shown so transparently in the DC contracts.

    However rather puzzled at what alchemy permits you to imagine no damage to DB due to the market correction?

    With so many DB failures and an acceptance by most that 80% of existing DB’s will not be around in 10 years it seems that there is a fundamental flaw in DB to be resolved.

    Especially if our mission is to restore faith in pensions

  2. Richard Bryan says:

    If you’re still contributing to a DC scheme, you want the market to be low, not high! (and hopefully it zooms up just before you retire).

  3. Robert says:

    Time for the Kwells I think.

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