CDC – a sop to the wreckers.

john ralfe questions

The  publication of the Work and Pensions endorsement of CDC, has led to agitation among the CDC wrecking crew. John Ralfe & Co throw stones on twitter – the wrecking is  largely ignored but we remain concerned to be transparent and helpful to those who are looking at CDC with fresh eyes.

The wreckers latest tactic is to issue lists of demands for documents that could be put in front of members explaining what CDC is. I have  refused to do so because such documents simply offer the wreckers the opportunity to make more and more outrageous demands on my and others time.

But it would seem such demands will continue to be made of us – whether we refuse or not. We are treated as if we were the communications agency of the Department of Work and Pensions (who are busy writing the rules that will allow us to answer the questions in due course).

Yesterday, The Friends of CDC were presented with a list of ten questions (above) which by consensus, we agreed to ignore.

This tweet has led to howls of protest from the people who pretend we are the communications department of the DWP.

The truth is that none of us knows the nuts and bolts of CDC, that will emerge after the DWP has created the legislation for CDC. The legislation is likely to be laid before parliament next year and enacted in a Pensions Act in 2020.

There will always local differences of opinion even among those who agree in the main. An example is whether a CDC scheme should offer a transfer value in payment.

If the legislation is written properly, there will be scope for CDC schemes to offer some flexibility in design to meet differing needs of different groups of people.

So any answer today, is subject to an individual’s view of what will be permitted in the future. I do not think it is sensible to speculate on what John Ralfe considers “nuts and bolts” and that is why we collectively agreed not to get dragged into what could become a protracted game of whack a mole which could be unedifying and time-consuming.


Kevin Wesbroom to the rescue

Late in the day, Kevin Wesbroom, one of our number, agreed to offer answers to John’s questions.

All of these questions have been answered in various blogs by me Kevin, Con Keating and in the various responses we have sent to the DWP to help them in their thinking.

In what I suspect will be a vain hope that this will quieten John down, here are

10 easy answers to ten easy questions.

  1. How much more is CDC v DC, with drawdown, on average for members of all ages?

I’m afraid you need to be more precise with your question John. The problem with drawdown is that it does not address a fundamental question – how does the member ensure that their savings last as long as they live. We could model all sports of rates of drawdown (and for that matter all sorts of assumed investment strategies for the investment of the drawdown pot) – but they would either leave an individual member with unused assets on death, or they would allow the member to exhaust their DC savings before they die. If you can come up with a drawdown strategy that converts a DC pot into a lifetime income, we can do the modelling – perhaps that would be an annuity then? And I’m sure you will have seen the previous Aon modelling of CDC versus annuity?

2. How much more is CDC v DC, with drawdown, on average for a member who  joins  5 years before NRA?

As above

3. How much LESS is CDC v DC, with drawdown, on average for a member who joins 35 years before NRA?

As above

4. Why would members joining at a younger age be happy to subsidise members joining when they are older?

If a CDC plan is set up on the basis of a uniform target benefit at pension age, then this is no different to a conventional DB scheme. The inputs will be different by age (because of the assumed investment returns, compounded over longer periods) but the expected pension for each year of service will be “more nearly equal” to use the language in the Sex Discrimination legislation. If you object to inputs that vary by age, then we would presumably need to close down all DB schemes for the same reason

5. How much of the higher average CDC return v DC drawdown is just a function of taking higher investment risk, which an individual with DC could also take for themselves?

Individuals could take greater risks with their (individual) DC savings – but how do they deal with downside consequences? The beauty of a CDC scheme is that risks are shared across members, and do not have to be experienced individually, or immediately. So the collective has a superior investment horizon to the individual, and can take a higher risk, because it can be distributed – still fairly – among members over a period of time, rather than immediately and personally as it would have to be in an individual DC scheme.

6. Who decides the “expected return on assets? And how do they decide this?

The Plan Actuary. But don’t worry John – you get to see his workings! One of our key principles – adopted by Frank Field’s report – is that key financial information about a CDC plan would be in the public domain. So you would be able to comment to your heart’s content on the expected return on assets adopted by any CDC Plan Actuary. I think this is a far greater level of transparency that ANY pension scheme at present – can anybody see the advice you are giving your clients on the expected return on assets, or any other aspects of the financing of the schemes you advise? CDC will be in the public domain – a pretty solid way of keeping all parties honest in the process.

7. How is the “expected return on assets”‘ changed in light of experience?

It would be changed each year, as the annual benefit adjustment date, or whenever it is needed. At any point in time it is always the Plan Actuary’s best estimate of the return on the assets held by the scheme.

8. How is a CDC wind-up triggered and how are remaining assets allocated to members when a wind­up happens?

It is interesting that you ask a question about wind up, when no scheme has yet been set up! I expect the wind up provisions to be pretty standard – the trustees decide the scheme is no longer viable, or the employer decides it no longer wishes to continue with the scheme (for whatever reason – maybe new statutory provisions or a host of other reasons). In these circumstances I would expect that assets would be equitably apportioned to individual members, who would have individual DC accounts in their names.

9. How are Transfer Values calculated? How does this compare with the “expected return on assets?

Transfer values – available to members up the point of retirement – would be available, based on a fair share of the assets of the plan. At the point of valuation, the Actuary would solve an equation so that the total value of target benefits under the plan was equal to the total value of the Plan assets. The member would then receive a transfer value based on these target benefits. Remaining members of the plan are indifferent as to whether the transfer is paid or not, since it ie an equitable share of assets that does not disrupt the funding of their own benefits.

10. How are members who die younger than average able to pass on the unused share of their pension to their family, as in DC Drawdown?

This would be down to plan design, but I would expect typically a plan would offer a 50% survivors pension on the death of the member.


I fear you are running out of ideas as to why CDC is bad John! Frank Field’s committee, after taking evidence from a wide range of parties, some supportive, but many hostile, concluded that the balance of advantage lay in allowing CDC plans to flourish. Unless you can come up with any evidence – rather than just assertions, based on no modelling or detailed analysis, as far as I can see – I really do think you should fall in line with his conclusions.

Follow up

No doubt the debate will carry on , no doubt we will have further ridiculous demands for answers to questions that will not have been properly framed and no doubt we will be accused of not being able to properly speculate on what the answers will be.

There appears to be here a simple disjoint – on the one hand there are people intent on wrecking and on the other there are people trying to get a new kind of pensions over the line.

At some point we will simply have to stop responding because we all have other things to be getting on with. I for one have three businesses, two of which I run.


About henry tapper

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