CDC; the same – just better

CDC pensions boost.jpg

Not a perfect photo – but you get the picture!

The Government has bitten the bullet and – despite the Brexit House of Cards fluttering around it, published its intention to legislate this summer for CDC.

CDC is a new type of pension that brings together the best of DB and DC , offering ordinary people the prospect of a Wage in Retirement rather than a series of awkward choices.

CDC has been – till now – the type of pension that dare not speak its name. It is reviled by those who consider they own “pension risk” (most of the people on the institutional side of pensions). It has been reviled by those who want to manage risk at a retail level (financial advisers).

It is seen as populist and therefore dangerous and yet it has been adopted by Government pretty much as its champions, Royal Mail, CWU, Aon, First Actuarial and Willis Towers Watson, have suggested.

CDC as an inclusive rather than exclusive way forward

I am impressed by the consultation response. It stops short of treating Royal Mail as a proof of concept but it makes it clear that this scheme will shape the design of others.

Instead of marginalising multi-employer and decumulation only CDC schemes (the type where you transfer in your pension pot in exchange for a wage in retirement, the consultation opens the door to their becoming the mainstream future for CDC.

To address this, we believe it should be possible for CDCs to be delivered via Master Trusts, or industry bodies, as soon as practically possible.โ€™ NEST and other Master Trust providers were raised, with respondents arguing that commercial Master Trusts could and should be able to provide CDC schemes and/or decumulation-only vehicles

This change of approach results from the responses to CDC that clearly suggested that single employer CDC schemes will be the exception rather than the rule.

The vast majority of respondents also argued strongly that we are being too โ€˜timidโ€™ by limiting CDC provision to single employer schemes. We were very struck by the across-the-board nature of this argument: unions, financial services providers and employer representatives all felt strongly that CDC provision should be opened up to multi-employer schemes, mutuals, Master Trusts, decumulation-only vehicles and other commercial models

Indeed there is even mention of a CDC scheme for the self-employed.

Timidity – not!

Whereas the consultation document was accused of being timid, the response is not. Amber Rudd’s claims for CDC , trailed yesterday in the Daily Express make it clear that the Government is not dipping its toe in the water


I smiled when I read this in Rudd’s article in the Express

Today is a red letter day for the industry, which has wholeheartedly embraced those proposals.

Of course she has no idea of what is going on in the pensions industry, she has only the edited highlights of the consultation responses delivered to her by her civil servants. No doubt these did not include the published responses of the CDC nay-sayers. No doubt this will get on the goat of CDC detractors.

But that is what happens in a straight fight.

To the winners – the spoils.

If that sounds triumphalist – it bloody well is. Some of the Friends of CDC – Derek Benstead, Kevin Wesbroom, Con Keating and Robin Ellison have been fighting for this consultation response for nearly 20 years. Such a proposal formed part of Benstead’s response to the Stakeholder Pension Consultation in 1998.

The revival of CDC has been forged from the furnace of two raging debates

  1. How do you move forward if your DB scheme has closed and your staff refuse to accept a DC plan (Royal Mail)
  2. How do you deal with the freedoms offered at retirement, when you have no experience, aptitude or inclination to become your own actuary and CIO.

The winners of the CDC debate are not going to be the actuaries and lawyers and investment consultants, it will provide them with a distraction from the main event, managing down the long tail of DB and helping people to make something of DC.

The winners of the CDC debate will be people who have had to use DC in the past but now have the prospect of moving to CDC either because they have an employer like Royal Mail, or because they have access to a multi-employer scheme like NEST, People’s Pension, Smart and NOW. Or it’s because they will be able to transfer their DC pots into a CDC set up to pay them a wage for life for a fixed contribution.

The winners will be the mass of people who are currently ill-served by the DC/DB polarity.

In time I suspect that CDC will now find itself the middle way for people faced with the drawdown/annuity polarity.

CDC – the same – just better

If you ask people what they think a pension scheme is , they tell you that you pay your money in and you get your money back as a pension that pays out as long as you’re around.

They do not think of deficit contributions , they do not think of their drawdown pot running dry, they certainly don’t think of guaranteed annuities.

CDC is what most people imagine a pension to be.

Sure there are risks of miscomprehension. Kevin Wesbroom has always argued that we will need to explain CDC better than we have DB and DC. I look forward to that challenge.

But underpinning the formulation “the same-just better” is the strongly held belief by those who are Friends of CDC, that CDC can – unshackled from DB guarantees, provide a better pension over a lifetime. CDC pensions are the more efficient for not having to reserve for guarantees

We also strongly believe that CDC can provide much greater certainty than arise from the pension freedoms. CDC pensions are more efficient for the adoption of longevity risk pooling and the economies of scale resulting from their collectivity.

Finally, for the youngsters – who detractors say will take all the risk, there is this overwhelmingly positive aspect of CDC. CDC can be invested for good, for the social purpose that youngsters want from what they see as their money.

Young people know quite well that any pension promise made up to 50 years out, is going to carry some risk, that is a philosophical issue! But if they feel their money is invested in a sound way , underpinned by responsible investment principles, there is no reason why young people cannot get behind CDC as their best option.

CDC is the same – just better



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 CDC; the same – just better

  1. Phil Castle says:

    NEST or someone like the Teachers Pension operating a CDC scheme could be a game changer.

    A lot of private schools are contemplating withdrawaing from the Teacher’s pension scheme entirely for future accrual and a move to a DC scheme would be a very backward step, but a CDC option oeprated by NEST or TPA might be a compromise option.

  2. henry tapper says:

    Thanks Phil, I am reluctant to promote CDC as an escape route for employers with DB headaches, but there may come a point where if is a better alternative to ploughing weak employers into insolvency and schemes into the PPF. Independent Schools cannot however walk away from their obligations to people’s accrued rights and it will take a lot of hard work – as the CWU did – to convince teachers of the merits of CDC over future DB accrual (see too USS).

    • Phil Castle says:

      I agree with you about the accrued rights issue, but there is little staff can do if the Independant Schools decide to pull out for future accrual. My wife at 54 only just started at her job wiht a DB scheme at an indepndant school 2 years ago and it’s the first time she’s had a DB scheme and we thought great, best time to have it, i.e. last decade and a half so maximum benefit. It influenced her decision as to what job to take and yet if they pull future accrual, she my have been better off going to a higher paying employer without a DB scheme that didn’t remain around long enough for her to benefit.

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