Are you saving or investing?

Martin Lewis is bang on the money, we save with the expectation of certain outcomes and we invest , speculating on getting more than from saving, with the potential for less.

If you think this is motherhood and apple pie, watch the rest of the program. Most people confuse the two, which is part of the problem with scamming and certainly something for the FCA and insurers to worry about as they prepare for investment pathways, (some of which are more like savings pathways

Savings pathways?

The investment pathways (4 of them) are laid out in 3.2 of the FCA’s PS19/21

Option 1: I have no plans to touch my money in the next 5 years

Option 2: I plan to use my money to set up a guaranteed income (annuity) within the next 5 years

Option 3: I plan to start taking my money as a long-term income within the next 5 years d

Option 4: I plan to take out all my money within the next 5 years

Option one focusses on investment, while two , three and four point towards more certain outcomes and might aim to provide “de-risked” outcomes. Options two and four are more to do with savings and might be called savings pathways.

Is CDC a savings pathway?

Supposing the Government gives CDC the go ahead, the likeliest development of the concept (in the view of many) is not to replace DC as a way of investing for the future , but to provide a super-pathway for people who don’t want to select one of the four pathways above.

You might like to call it an investment super pathway, as your underlying assets are invested and can go down as well as up, but being “collective” this risk is spread accross a large number of people and (to a degree) over time. This provides an income that sits somewhere between option two and three of the FCA’s investment pathway.

Aon and others have – in their work with people at retirement – found that around 60% of people, when asked what they want at retirement  – described something that looks like an annuity – but which is neither called “annuity”, nor based on “annuity rates”.

We will get investment pathways – will we get a CDC savings  pathway?

To answer this question, it’s worth reminding ourselves of the warnings that Martin Lewis gives on savings. He reminds us that the rates we get on our savings aren’t generally fixed and will vary. Fixed rate deals run out and people cannot have certainty for ever.  (Of course that’s what an annuity gives you,)

The unique feature of an annuity is that it is a super-savings product as it insures the rate you get against the reserves of an insurance company. You don’t get that kind of promise from banks.

Nor would you get that kind of promise from a CDC savings pathway, the rate you would get determines the wage you get in retirement and we all know that our wages can go down as well as up and don’t always keep up with inflation.

We don’t think of our wage as speculative, we don’t ask our bosses for a guarantee that our wages won’t go down, we accept that in work, as in everything else, shit happens.

The key to CDC – is its appeal to the saver in us

If you watch Martin Lewis’ Money Show, you see people he talks to, who instinctively get saving (Martin founded Money Saving Expert).

They are ordinary people who may like a flutter but wouldn’t “put the house on it”. They probably reflect the views of those who don’t take financial advice, use investment platforms and they are people who get disturbed about the idea of putting their retirement into an investment pathway where their savings are at risk.

The key to CDC will be whether it can convince these people that CDC schemes provide a wage in retirement that feels like its based on “savings” , not “investment” but gives an income that is rather more like what they’d expect from an investment.

CDC aims to appeal to the saver in us, but to hold out the hope of investment linked returns, based on us doing this together. This communal endeavour is something that has been around in the UK a long time. It is what David Pitt-Watson bases his arguments for CDC on. It is why CDC has been championed by the unions as a better way of doing DC.

Ironically, CDC was first introduced by a Liberal (SteveWebb) and reintroduced by a Tory pension minister (Guy Opperman). It has the support of the Labour party, politically it is a highly popular way forward. Politicians think that CDC is a popular policy waiting to happen, it appeals to the saver in us.


I think at the heart of the professional discomfort with CDC is this confusion people have between the certainty of saving and the speculation of investment.

We know that people, when faced with choices they don’t understand, generally go for certainty (even if that leads to being scammed). Is CDC just another such scam or can those (like Royal Mail) prepared to give it a chance, convince the general public that this “collective” thing – actually works?

Can CDC be sustained over time, accross political changes – as the state pension has lasted? Can CDC survive the inevitable financial crashes that will beset it over the next ten decades and still be a force in 2120?

These questions cannot be answered on a blog, they can only be tested in real life. Royal Mail are giving it a go and the reaction of the postal workers to CDC – as opposed to investment pathways has been encouraging.

Those postal workers have the right not to go down the CDC route , take their savings to a SIPP and invest them. They may prefer cash in their bank account or even an annuity to the communal endeavour of the CDC plan.

Am I a saver or investor?

Of course I am both, I need to save for the things I need to spend money on right now and I need to invest for the things I need to spend money on in years to come.

Most people get this and most people, when they come to think of their pensions, accept that their money is invested and stick with “the default investment option”. Of those who opt-out, some may feel that investment is not for them but I suspect most simply don’t want to or can’t save.

Yesterday MAPS launched its blueprint to get more of us saving and helping 5m people to take retirement decisions. I think it’s an admirable vision. It looks as is MAPS is going to rely for the delivery of that vision, very much on the private sector (talk of Pension Wise is minimal).

If we are going to see pension pots turned into retirement plans, we are going to have to help people take those decisions outside of MAPS. That means putting more reliance on insurers and SIPP providers to offer investment pathways, more reliance on advisers to help people through the more difficult pathways and a huge effort on behalf of occupational schemes (most of all the master trusts) to help people through the “strait of Hormuz”.

Martin Lewis is not a pension expert, he’s about savings. Perhaps we should come a little towards him and start talking the language of savers, the language his viewing public understands best.

I am an investor in my head and a saver in my heart!



About henry tapper

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