CDC and the actuarial profession


I am not an actuary, I work with actuaries and I work for an actuarial firm. I stand up for actuaries and I praise them where praise is due.

Yesterday saw an attack on the actuarial profession on twitter over CDC. Specifically this tweet.

John Ralfe’s comment had been to Kevin Westbroom’s exasperation

Demystifying actuarial involvement in CDC

The amount of work that the actuarial profession will get from CDC will be minimal. It will not even register a mention on timesheets.

Pension Actuaries are not looking for work at the moment, they are overloaded with it. They are the people who will be sorting out the £15bn mess of GMP equalisation, they’re the ones tasked with steering defined benefit schemes through current hazardous waters. They are active in the CETV debate , creating the new TVCs , sorting out FSCS discount rates and managing the exodus of billions from occupational schemes. Not all this work is work actuaries enjoy doing. They would rather be doing better things.

One of the things that pension actuaries would like to do, is to help people get paid pensions. The seemingly relentless march towards “wealth” rather than income, culminating in the chimera of freedom and choice, has put the concept of a “wage in retirement” on the back burner. This is convenient for the wealth management industry but is not so good for ordinary people. The FCA revealed yesterday that pension transfer activity is up 567% year on year – the sound of stable door swinging!

I start my presentations on Port Talbot and its lessons with this quote from a South Wales steelworker

“I wonder how many of the financial advisors who recommend transfers out, predicted a 10% drop in the stock market in one week ? Not many is my bet?”

That quote was from early this year , when the FTSE had fallen 10% in a week. Year on year the FTSE (along with other world stock market indices ) is down. Here’s Al Rush talking to those he is advising

The point is this, for many of those who collectively transferred £36.8bn out of DB last year, the uncertainties highlighted in these quotes will haunt those who transferred for decades to come. Many will have to watch the market rollercoaster and with the volatility will come that awkward and then desperate feeling that the financial security they have enjoyed cannot be returned to them, A typical transfer value comparator tells its story, the cost of buy-back to certainty is way beyond the levels of compensation from FSCS. People who transfer out are now having to face the financial consequences of BREXIT alone.

The actuarial involvement in CDC is currently about ensuring that 140,000 postal workers are not exposed to this uncertainty. In years ahead, many actuaries hope that everyone with a DC pot will have access to a CDC pension – whether sponsored by their employer or not. That is because these actuaries, under the umbrella of the Friends of CDC have to come together with lawyers, consultants like me and academics to find a solution to what one financial economist admits is “the nastiest problem in finance” funding an income that lasts as long as you do.

Actuaries are only part of the solution

The tripartite support for Royal Mail given by WTW, Aon and First Actuarial, is unprecedented , heartening and praiseworthy. But it is only support, these actuaries would be the first to accept that the real heroes are the Royal Mail , their staff and their staff’s representative body- the CWU. This has been acknowledge by the DWP Select Committee in parliament, by the Pensions Minister and will – we hope – result in legislation which could turn the anticipated CDC scheme for Royal Mail into reality.

Nonetheless, the modelling, the conceptual thinking, the sheer hard miles of negotiating, have been conducted mainly by actuaries. They may be only part of the solution but they are a key part of the solution. Without actuaries CDC will not happen.

Behind Hilary Salt, Derek Benstead, Simon Eagle, Kevin Westbroom and Matthew Arendts is the spectre of uncertainty that would return to Royal Mail if a pensions deal was not done – the strike over a DC pension scheme and a cash balance DB plan that the postal workers did not want. What is also in their minds, and I spend time with these people, is the thought of what the steelworkers and those like them, will have to endure in a world of wealth management so utterly unsuited to them.

CDC offers a way out of the nightmare of “guided investment pathways” being trod by the FCA. It’s a way out of products like self-invested personal pensions, which ordinary people are quite unequipped to use and its a way back to the collective pensions that ordinary people aspired to relying on – till recently.

Respect for the actuaries who do this work

Even for those actuaries involved with Royal Mail, the great part of their time devoted to CDC is “unrecoverable” – that means – they’ll never get paid for it. The work is being done largely for free and the time is being written off by the actuarial firm for the greater good.

The actuaries mentioned above – and many other besides – are worthy of our respect, indeed our thanks. They do not deserve the rubbish that is being thrown at them on twitter by people who should know better.

You might ask why I have devoted over 1000 words to saying this, you may wonder why you are still reading this blog! The answer to your puzzlement should be this…

Actuaries are doing a great job over CDC and it’s about time somebody pointed this out!




About henry tapper

Founder of the Pension PlayPen,, partner of Stella, father of Olly . I am the Pension Plowman
This entry was posted in actuaries, pensions and tagged , , , , , , , , . Bookmark the permalink.

9 Responses to CDC and the actuarial profession

  1. John mather says:

    Henry there are always cheap shots based on others income derived from doing the work of trying to solve the pensions problem. It helps those who should save more to excuse their lack of understanding or action. You just have to rise above the noise and avoid the pointless exchanges and just do what you think right to make a difference

    • Robert Reid says:

      To be fair there have been “cheap shots” from both sides and that has proved that we need to focus on the member above all else and turn theory into something people can understand and appreciate

  2. henry tapper says:

    Thanks John

  3. Adrian Boulding says:

    I still believe the slogan the Institute invented some years ago “Actuaries – making financial sense of the future”

    It will not be easy to make sense of CDC but I applaud all those who are trying to do just that


  4. henry tapper says:

    If you keep it simple – it makes sense – it no more than a way of getting a decent wage in retirement

  5. Derek Benstead says:

    To build a house, who do you hire? A construction company or a demolition company?
    If I need a house, do I begrudge the profit the construction company might make building it for me? Or do I build it myself? For most, paying an expert to get the job done at a profit is the best way forward.

    If I am to be worth my pay as a “pensions expert”, I need to show how to provide pensions efficiently for large numbers of people. As one of the people who is working hard on CDC, that is what I am doing.

    It is the large numbers of people in the industry who are shutting down DB schemes and who have no solution to the alleged problems of DB, who might not be worth their pay. They are demolishing schemes, not constructing them.

    A scheme which is not open to new members is (probably) a failure: it has failed to adapt, to failed to find a solution to providing pensions in an affordable, manageable manner. There is no date after which the following generations do not need pensions, but the generations before did.

    I should be spending my working life managing the provision of pensions. I actually spend most of it arguing about the provision of pensions with those who do not have a good vision for how it can be done.

  6. Robert Reid says:

    Interesting that Actuaries assume this comment was about them as it was about EB consultants in general
    My point remains we still haven’t seen what would be acknowledged as good comms re explaining CDC to a member given the poor level of communications in OPS it’s time we had a level playing field retail level of disclosure for all
    My tweet was in response to the tone of response to alternative views if you don’t want to hear what people think then it’s strange to see that as open debate
    We must ensure that we continue to challenge old practices and new alternatives to ensure we have informed consent at the moment we don’t seem to be able to show what the disclosure would be re CDC let’s work to produce that ASAP we can then have a more focussed debate

  7. henry tapper says:

    Robert – yesterday the PPI had an open debate on this in London, Friends of CDC have done a number of events – which I’ve advertised on here – which you could have come to. The RSA is also funding open debates – one happened this month. The biggest open debate is the consultation which the DWP are running.

    In all of these forums , people like you are free to air your views, there is nothing closed about this debate.

  8. henry tapper says:

    BTW – neither John Mather or I are actuaries. We are keen on getting people help in retirement. Derek is an actuary and so is Adrian – but I suspect we all share one aim

Leave a Reply