Will master trusts go CDC?



We have become a nation of pension savers without a clue what we are saving for

This became apparent to me and I hope the audience of a recent DC event , when a senior representative of NEST told the audience that his 7m members tell him they are saving into a Government pension scheme and expect a Government pension at the end of it

This is not the plan – at least not for now it isn’t. NEST does not pay Government pensions , nor does it pay a pension at all. It is able to return your savings to you in a number of ways – depending on your specification, but none of them include a lifetime income- for that you will have to go buy an annuity.

Last Week, Darren Philp of Smart Pension became the first person from a major master trust to explicitly support the CDC. You can read the article here.

The article stops short of suggesting Smart will go CDC, but that implication is there. The DWP consultation cites the large workplace master trusts as obvious candidates to convert to CDC and it’s not difficult to see why.

NEST has around 7m members, Peoples Pension 4m, Now around 2m and Smart just under 1m. While some people may be members of more than one, that still tots up to well over 10 million people who may well be expecting their pension plan to pay them a pension.

As importantly, these are  10m people who generally do not have financial advisers or the means to do the detailed cashflow modelling to make their money last as long as they do. Not only do these people not have a plan, the trustees don’t have a plan either. To talk of any of these master trusts as “pension plans” is to over sell their utility. Right now they are doing no more than collecting and  investing contributions in a tax free way.

Time to speak

So far, the plans put forward to help people spend their money have either been rejected or ignored. NEST proposed a solution that defaulted people into an annuity when they got too old to do drawdown, People’s have employed LV to provide a similar service, several of the smaller master trusts use the Alliance Bernstein Retirement Bridge, but none of these ideas has caught on, and NEST were told by Government that they could not implement their plan.

So it is time for someone representing the interests of these 10m + savers, to stand up and be counted and I’m glad that it was Darren who did just that.

His article takes the John and Yoko chant “all we are saying..” and asks that CDC be given a chance. No doubt it will, and that won’t be entirely thanks to Smart Pensions. However, the support of Smart Pensions to the CDC debate, shouldn’t be underestimated.

It is time we heard from other master trusts and indeed their trustees.

Is this a business or a trustee decision

Darren spoke as an employee of Smart Pensions. Master trusts are commercial entities (other than NEST which has a business plan to repay the £1,2bn it plans to borrow from the tax-payer.

The critical commercial consideration for all the master trusts is that they hang on to their big pots and lose the small pots. Pot consolidation will undoubtedly come, and will be hastened by the pensions dashboards, the big pots will either result from consolidation or from consistent saving into a single pot. We are years, perhaps decades away from master trusts having the size of pots to make them self-suffecient. For now they are eating money in the expectation that profitable big pots will come.

The critical consideration for master trust trustees, is not so much the profitability of their provider, but the welfare of those who invest with them. It is odd that to date we have not heard anything from the trustees of master trusts about CDC.

Shouldn’t master trustees be involved in the debate, shouldn’t they be sharing their thinking on how they expect their members to spend their savings in retirement and shouldn’t their be a dialogue between provider and trustees on the opportunity presented in the CDC consultation, to upgrade their “pension plan” to CDC in due course?

We save but we don’t know what we’re saving for.

I can understand why both master trust providers and their trustees are keeping their heads down. They are going through the hard work of getting master trust authorisation and are still digesting the massive slug of new business that has arrived through auto-enrolment.

Even the consultancy master trusts set up to consolidate failing individual DC plans have a lot on their plate.

But the deafening silence from the master trust community regarding CDC seems a failure of nerve.

It has been left to a few activists (the Friends of CDC) to write the articles and promote the subject. The master trusts have been silent.

That is until Darren’s article.

I hope that – assuming we get the anticipated pension bill and that CDC legislation forms part of it, more master trusts will have the courage to step forward and enter the debate.

Let’s finish with Darren

I .. think that master trusts could be key delivery vehicles for CDC in the future, especially in helping manage volatility up to, and through retirement. People just want help!


About henry tapper

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