Johnson misses the point; CDC is for the common man

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I don’t know whether Michael Johnson is being obtuse or obstructive, but either way, his letter to the Financial Times, misses the point.


 A small cabal of consultants to the pensions industry has been banging the collective defined contribution (CDC) pensions scheme (“ Royal Mail eyes Canadian-style pension model ”, May 2) drum for some time.

Without a client cause, success has eluded them: there is next to no demand for CDC from corporate sponsors of pension schemes.

Having transitioned from providing defined benefit (DB) to pure DC pensions, employers have no intention of entering what would be a very complex, untested, arena.

But the opportunity to play a role in settling the Royal Mail’s pensions travails has been gleefully leapt upon. The consultants’ have attached their CDC cause to settling what is ultimately a labour dispute. This renders the CDC debate primarily political, rather than being driven by any performance merits.

This is not a sound basis for the formation of pensions policy.

Michael Johnson -Research Fellow,Centre for Policy Studies,London NW5, UK

CDC will do very little for employers (at least in the short-term). Johnson is right to point out that Royal Mail came to CDC as a means of resolving a labour dispute. There are other potential disputes out there, quite apart from the recent dispute among University Lecturers and CDC may again be used as a compromise solution – but it is not of the least importance to small employers and not to most big ones either.

CDC is important to staff, or at least it will become so, as more staff find out that pension freedoms don’t equate to proper pensions.

As one of the small cabal of pension consultants named (indeed the pension consultant who invited Johnson to the meeting of Friends of CDC to which this letter refers), I am pleased to be recognised for banging the CDC drum.

The alternative would be to allow the UK insurers to press ahead with drawdown for the masses with a fall-back position of annuitisation. Both of these solutions work for insurers but don’t work too well for the UK consumer. If Michael Johnson wants to hand the trillion of so that will be in UK DC by 2030 to a small cabal of life insurers, he should continue along this way.

But knowing him, I do not think he wants this, I think he is a libertarian who generally wants people to choose or at least have the choice of, good ways to finance their retirement, not least to reduce the burden of their maturities on subsequent generations.

It is not the job of small employers to insure against their retired staff’s super-longevity, but employers are quite comfortable to operate workplace pensions (as proven by the successful staging of auto-enrolment).

If an employer was given the choice of a standard DC scheme or an upgraded DC scheme (which enabled staff to have the equivalent of a scheme pension) then few employers would begrudge the upgrade – PROVIDED they were ring-fenced from any liability for the payment of the pension.

If an employer has any residual concern about the potential liability of participating in a CDC scheme, they should not enter into such a scheme. Employees should be free to transfer their DC pot into a CDC “general purpose” scheme.

Johnson seems unimpressed by the arguments put forward by people like me that CDC will produce pound for pound better results than IDC/drawdown or IDC/annuity and he is unlikely to transfer his pot into a CDC plan or run a company that participated in a multi-employer CDC scheme. But his libertarian principles should include a recognition that he does not speak for everyman. Others may hold different view than his.

As for his contention that pension policy should be based on performance rather than policy, I agree.  Royal Mail’s potential settlement has added £2bn to its share price, should a “wage for life” solutions not be delivered, then the performance of Royal Mail’s shares will not be sustained.

That £2bn is of course based on what the CWU’s membership has voted for (91%). Michael may agree with other pension experts that over 100,000 postal workers have been mis-sold the deal by their union, but that is in itself a political opinion.

If we consider workplace pensions as deferred pay ( and we have done for many generations) , then any pension dispute is a labour dispute. By breaking the link between contributions and pensions (firstly by moving from DB to DC and latterly by taking away the need to annuitize), the Government has created a problem for itself.

That problem goes beyond Royal Mail’s current “labour dispute”, it is a problem to do with the adequacy of retirement incomes in later lives.

The Government, which sponsors workplace pensions with generous tax incentives, is perfectly entitled to facilitate innovation in private pensions. This was precisely what the Defined Ambition of PA2015 was designed to do and what the FCA’s Retirement Outcomes paper is calling for.

The Government should see Royal Mail’s request for secondary CDC legislation, not as a burden, but as a policy windfall. If anyone should be gleefully jumping to Royal Mail’s aid, it should be the DWP and the Treasury.

Michael Johnson should remember that the meeting he attended in January had 69 attendees, I have the list and can count only 6 consultants on it. He is as wrong in his memory as he is in his analysis. CDC is for the people , not for consultants and not for employers.

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About henry tapper

Founder of the Pension PlayPen,, partner of Stella, father of Olly . I am the Pension Plowman
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1 Response to Johnson misses the point; CDC is for the common man

  1. Phil Castle says:

    I wish I had attended now. Johnson does seem one of those people who thinks his opinion and world view is the only one that matters.

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