CDC – the pension for people who don’t do pensions.

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Royal Mail deal could “transform UK pensions landscape”

The Government’s Work and Pensions Committee has been gathering evidence on Collective Defined Contribution Schemes since November last year. Today they have published their findings. You can read the summary of their findings on this blog.

Ever since the Pension Freedoms were granted us in the 2014 budget, there’s been an unprecedented interest in individual pensions from ordinary people. The grant gave us back our money, which for many people had been lost to insurance products they didn’t understand and if they did – they didn’t like. Pensions had lost their changing room and George Osborne changed that.

But what has followed has not been so good. The Defined Ambition section of Pensions Act 2015 was supposed to bring the innovation to pensions to help us use our new found freedom – it didn’t. Instead of cultivating the “thousand flowers that bloom”, the then pensions minister, Ros Altmann, sprayed the ground with DDT.

Fortunately, the seeds that had been sown weren’t destroyed. They germinated in 2017 when Royal Mail and the Communication Workers Union determined to avoid industrial action by settling their differences. Royal Mail agreed to keep open a collective pension scheme ( a CDC scheme without guarantees) and the Unions called off a strike.

Dog in the Manger reaction from Pensions Industry

What has followed has been one of the most revolting spectacles I have witnessed in 35 years in financial services.

Instead of welcoming the settlement and setting about helping with the design of the CDC arrangement, the industry crossed its arms and said “harrumph”. John Ralfe’s tweets may be the most obvious manifestation of industry opposition, but that opposition is deep and implacable.

It is hard not to view this violent antipathy to CDC as “dog in the manger“.

For those who look after the wind-up of DB plans, CDC is an unwelcome return to ongoing pension provision. So dogmatic has the de-risking brigade become, that even the ongoing obligation to provide a defined contribution for staff, is an obligation too far. Many “pension consultants” have in fact become corporate management consultants whose principal objective is to remove pensions from the workplace – or at least to the statutory minima decreed by Government. They have no use for CDC themselves (they are independently wealthy) and they see no use for their paymasters (since the human resource is simply a commodity).

For those who run insurance companies, the operators of SIPPs and even the managers of some master trusts, the opposition is different but no less intense. CDC presents an existential threat to their corporate business plans which depend on the extraction of fees through unadvised and advised drawdown policies. The current rate of fee extraction will deliver the pensions industry with an annuity income to keep us all in Lamborghinis for decades to come.

These two groups come together to whine about CDC as in some way “anti-consumer”.

The arguments fall into three buckets

  1. It’s with-profits in disguise – opaque and an actuarial license to rip-off pensioners
  2. It’s inter-generationally unfair – a way of lining old people’s pockets at the expense of a younger generation
  3. It relies for its efficiency on discredited concepts such as the equity risk premium , mutuality and inter-generational solidarity.

All of which is specious nonsense invented for the preservation of the status-quo that benefits the pension industry and excludes everyone else.

Royal Mail deal could “transform UK pensions landscape”

Now – for the first time – a group of MPs have come together and concluded that CDC suffers from none of the above and is by contrast , just what this country needs

  1. It is a way to help people spend their retirement savings as a wage for life
  2. It does not require advice so is fit for the 96% of us who don’t have financial advisers
  3. Because CDC pensions are paid from best endeavours and not sponsored by employer guarantees, they offer employers the opportunity to benefit their staff without being on the hook for short-term market downturns.

And in full hand-waving glory, here’s a clip of me explaining what this means to ordinary people.

As the Work and Pensions Report makes plain, the efficiencies of CDC are created by by-passing the army of intermediaries who are so implacably opposed to its introduction.

Time for us to wake up and smell the coffee

Perhaps the most egregious examples of industry indifference to the opportunities of CDC have come in the last few weeks from the FCA and PPI.

The FCA’s Retirement Outcomes Review is a very long document which addresses the exam question  “how do we help ordinary people spend their retirement savings”. It ignores CDC as a solution.

The PPI’s retirement report, Evolving Retirement Outcomes,  follows the same path. It eschews the option to innovate and demands that the public engages with the same old spending solutions that the pensions industry has been peddling since the introduction of personal pensions in 1987.

I suspect that these shamefully myopic responses to a crisis in pensions policy, will now be seen for just that.

Here is the response of the Royal Mail and CWU to the Report

Responding to the Work and Pensions Select Committee report entitled ‘Collective Defined Contribution pensions’, Jon Millidge, Chief Risk and Governance Officer for Royal Mail, said:

“We welcome this report on Collective Defined Contribution (CDC) pensions from Parliament’s Work and Pensions Select Committee. We are pleased that the Committee has expressed its support for CDC and recommends “the Government should set out a swift timetable for enacting CDC schemes in the UK”.

“As the provider of around one in every 190 jobs in the UK, Royal Mail is committed to delivering the best possible pension arrangements for our people. With the Communication Workers Union (CWU), we have committed in principle to the future introduction of a CDC scheme for all Royal Mail employees, subject to the necessary legislation.

“Given the support from this influential Committee, and the progress we have made with Government in recent months, we hope the Government will introduce the legislation required to enable CDC pensions at the earliest opportunity.  We want to be able to offer a CDC scheme to our 141,000 strong workforce as soon as possible.”

Terry Pullinger, Deputy General Secretary of the Communication Workers Union (CWU), said: 

We are delighted the Select Committee has come out in support of our CDC scheme and has recommended the Government introduce the legal changes we need to provide CWU members with a decent wage and security in retirement. Our scheme will be the first of its kind in this country and will provide an exciting and important innovation in pension provision that offers an alternative and not a replacement for DC and DB provision. It is certainly the solution for our members and we will continue to work with all concerned to secure its introduction ASAP.”

Here is the response from Hilary Salt – Founder of First Actuarial 


“This is great news for retirement savers. Frank Field and his team have recognised the value of CDC, not just to postal workers but to ordinary people across all industries and professions – including the self-employed.

The fundamental need for a wage in retirement remains, despite the lure of pension freedom. This report restores to millions of British workers , the prospect of more generous and predictable pensions than offered by annuities or income drawdown”.

About henry tapper

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