There was a good news story playing out in Committee Room 6 of the Westminster Palace yesterday morning. A good news story, that is, if you fancy a pension from your workplace pension scheme.
The second round of oral evidence on CDC included contributions from Guy Opperman, the Pensions Minister and Ronan (Keating) O’Connor – the civil servant with the rock star good looks.
Opperman and Keating were a remarkably good double act, never contradicting each other. The Minister appeared properly briefed and spoke with some integrity, explaining that till now , he has been endeavouring to help people to bigger pension pots and that the question of turning those pots to pensions , hadn’t previously been bothering him.
This is not me being sarcastic, most people see pensions as a “pot-building exercise” and few like to consider the “nastiest , hardest problem in finance” – turning the pot into a wage that lives as long as you do.
The CWU have considered this and so are their 145,000 members who are also Royal Mail staff. We will know by the end of the month the result of the Four Pillars Ballot, which will say yay or nay to the CDC plan – but news from the CWU roadshows is one of quiet confidence that the CWU’s position will be endorsed.
Poking the pointy stick
Frank Field could not resist poking his pointy stick at O’Connor and Opperman who has both delivered downbeat, if not downright dismissive submissions to the inquiry earlier in the year.
Opperman, countered the mild surprise of the Chair with a robust “that was then” argument. Since “then” – Opperman has met Royal Mail and CWU. O’Connor told the meeting he had been impressed by the way they were working together.
Opperman , who was quite playful in his use of political equivocation, stated
“We are minded to assist but at the same stage I don’t want to give any cast-iron guarantees,”
Royal Mail- no guaranteed delivery!
There was one in the gallery who welcomed the absence of guarantees, they have wrecked DB and the less CDC has to do with them – the better. The delivery of Royal Mail’s CDC is far from guaranteed, not least as no-one seems to have the first clue how to administer it (apart from one person in the gallery). More of this anon!
Politicians aren’t into nuts and bolts, the assumption that we have the administrative apparatus to meet the demands of employers, members and regulators, is a dangerous one. It has been disappointing that no-one so far from the Committee has questioned whether there is market capacity to manage a 150,000 life DC pension which promises target incomes and pays variable pensions. Pensioner payroll, scheme administrators and pension software engineers may be scratching their heads. Mails on this to firstname.lastname@example.org welcome!
Support Act good as well
While Opperman and O’Connor were always the headline act, they didn’t entirely steal the show. We had a supporting set from Bennett, Westbroom, Turner and Oerleman.
The DWP have been keen to distance themselves from claims that CDC can deliver more than DC – I suspect with proper respect for heads and trenches. Not so Dr Alwin Oerlemans, Chief Strategist of Dutch Megafund ADP, who rocked the room with his plain speaking advocacy for a collective approach to funding.
I haven’t hear such a robust defence of the advantages of institutional investment in some time. Having heard from Westbroom that a 30% better pension could be available over an annuity purchase, Oerlemans claimed a further 20% advantage from an extra 1% return from more efficient management, greater diversification, access to illiquid funds and the application of patient capital. He also pointed out the reduced volatility that could be achieved by proper risk management stemming from first class fund governance.
It has been some time since I have heard such confidence in the investment aspects of CDC and his authority went unquestioned in the room.
Similarly, the contributions of Philip Bennett and Kevin Westbroom were first class, demonstrating their depth of understanding of pensions legislation – especially the 2011 and 2015 acts. The shift from trying to muddle through the DA approach of PA2015 to amending aspects of the 2011 Act was clearly outlined by both (and picked up by O’Connor later). While the changes needed to make CDC happen will in themselves be quite easy, ensuring that CDC is a success and doesn’t have unintended consequences elsewhere – will be anything but.
We had to wait a time for Janice Turner to speak, but when she did , she was remarkably coherent about the role of trustees in CDC. Oerlemans reinforced her points by explaining how, properly trained Member Nominated Trustees work alongside Sponsor Trustees in Holland. The discussion on Trusteeship is well worth a listen using this link. Janice is on at 10:08:34. This was one of the best sections of the whole meeting and is well worth a listen – especially if you have aspirations to be a CDC trustee!
One quibble – Kevin, let the people go!
As mentioned above, the support act were uniformly on top form and did a great job; my quibble is with the suggestion that CDC cannot provide people with transfers when the pension is in payment. I can understand why Kevin’s model wishes to place this restriction on members, but it isn’t a view shared by all Friends of CDC! Many of us subscribe to the view that as many of the people opting out of a CDC pension will do so because they are healthy, wealthy and wish to manage their own money as opt-out to spend their money early. Pensioner opt-outs should even each other out – as regard their impact on the longevity pool.
But more importantly, if you deny people the right to get out, you create real issues for ordinary people , one of which is that you give people no prospect of a lifeboat if things go wrong, another of which is that you are denying people the freedom to change their mind and the third of which is that you underestimate the good sense of the majority of people to do the right thing for themselves!
Nudgenomics tells us that 90% of people will stay in the scheme and that the 10% who leave will do so because they are individualists – for whatever reason. If we believe in the CDC model, we must have the courage of our convictions and let people go – whenever they want to go – and on fair terms!
If you want to watch the show, here it is. Don’t be put off by the screen saying the session is currently in private, just push the slider to around 9.30 and you’ll get the start of the proceedings.
For a full account of the events as they happened look at @henryhtapper and @josephinecumbo twitter timelines