The CDC Consultation – a step towards sanity!

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That we have a consultation on CDC is something of a wonder. Almost a year ago to the day I asked Steve Webb in front of a roomful of my colleagues what chance we had of seeing CDC achieved in the immediate future, Steve told me and the room there was no chance. Steve repeated this yesterday, but to rather less effect; there is now a very real chance that Royal Mail will be establishing a CDC scheme by the end of the decade.

If all goes to plan, the Queen will announce legislation for CDC in her speech in the summer and regulations will be laid before parliament later in the year to be enacted in a Pensions Act 2019. Meanwhile, Royal Mail can get on with planning their scheme around the proposed rules so that the postmen and women can convert their interim scheme into the targeted pension presented to them by their union earlier this year.

This is “wonderful” for a number of reasons. Firstly it has been achieved against a backdrop of almost universal scepticism within the pension industry. Steve Webb, who proposed the Defined Ambition legislation that precursed the current consultation , is clearly far from convinced by his own idea. If he is sceptical, many are downright against it. The idea of promising people a pension based on what’s in the pot might not seem too radical – it is after all the basis of all DC; however, it has brought accusations of chicanery from the financial economists which have at times been venomous.

The open and covert hostility to CDC has in part been against its capacity to disintermediate a pensions industry which is enjoying a golden age of profitability. The pension freedoms are being exercised at great expense to ordinary people’s retirement savings which are being plundered by HMRC, asset managers and advisers. There is a price to this freedom and it is being paid out of people’s long-term retirement income. CDC is a means to organise people’s spending in later life and to give people an alternative to annuities, drawdown and cash-out. It is a wonder that it has appeared, when the pensions industry is doing so nicely without it.

Finally, the CDC consultation is a wonder , as it has arrived at a time of great legislative strain. It is one of the very few new financial initiatives to have arrived in these Brexit-torn months. Many cast scorn on the Government for prioritising CDC – claiming it is a political move to give Theresa May one good news story (the cessation of planned industrial action at Royal Mail). This is a very sorry way of looking at matters and it is not the way that the DWP Select Committee, chaired by a Labour member , nor the unions, nor the 140,000 + employees of Royal Mail look at it. There is general cross party political support for the introduction of CDC. The only place where it is being opposed, is amongst pension experts.

CDC is not an existential threat to the wealth management industry, it will not threaten auto-enrolment, it will not even impact what’s left of defined benefit pensions. For those who see it as a Trojan Horse to do away with the guarantees within Government’s own pension schemes, they should heed the words of Bryn Davies, who reminds us that the settlement on these pensions has many years to run.

There are within the consultation, some disappointments. I would have liked to have seen the door more open to multi-employer CDC schemes – offering an opportunity for master-trusts – and I’d have liked to have seen the option of a decumulation only scheme into which people could have transferred DC savings unilaterally. I am not convinced that the Pensions Regulator’s role as authorising CDC benefit structures is properly thought through.

However, I think the CDC consultation, not just in its conception, but in its delivery and I look forward to seeing it debated over the next couple of months.

For Friends of CDC, yesterday was a remarkable day. It has been almost 10 years since the infamous GAD dismissal of risk sharing, 20 years since my friend and colleague Derek Benstead first proposed CDC as part of his stakeholder consultation submission. CDC is nothing new (as the consultation announces at its start) but what we have in this consultation is a new kind of CDC, one that I hope will have a profound impact on the way we spend our retirement savings in decades to come,

It is a step towards sanity.

About henry tapper

Founder of the Pension PlayPen,, partner of Stella, father of Olly . I am the Pension Plowman
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3 Responses to The CDC Consultation – a step towards sanity!

  1. Derek Benstead says:

    “The only place where it is being opposed, is amongst pension experts”
    Let pension experts demonstrate their expertise by showing how to provide pensions to current and future generations.
    “accusations of chicanery from the financial economists ”
    A CDC scheme does not provide a benefit guarantee. If there is no guarantee, there is nothing for a financial economist to insist is discounted using a bond yield.
    Actually, a CDC pension aspiration (we will pay you what we think we can afford) looks rather like a company’s aspiration to pay dividends to its shareholders. I look forward to financial economists pointing out that a CDC pension aspiration is “equity like” and insisting the discount rate in the actuarial plan is based on equity dividend yield.

  2. Julie Richards says:

    I’m not a fan of CDC and Derek’s comment captures the essence – “does not provided a benefit guarantee” – plus they are not the most transparent. Members still have to accept risk. Such criticisms that can be levied at DC but at least they are not pretending to be something they are not. If “pension experts” is meaning those professionals in the advisory industry then I am bemused by them being cited as the only source of opposition! There are others who have a healthy skepticism of CDCs. Let CDCs be enabled and then let the market decide if they are worth it.

  3. henry tapper says:

    I quite agree with your comment Julie – 140,000 postal workers have asked for CDC (collectively). They have asked for it instead of DC – though they’d prefer the certainty of DB. You are quite right to ask these questions – though I suspect that you are an expert too!

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