The FT moves the needle on CDC

As I predicted, yesterday turned out to be a day of pension debate and what started as an editorial in the FT , was continued in an excellent seminar where Claer Barrett , Jo Cumbo and Sebastian Payne explored the idea of a “new pension deal for the young”.

Unequivocally, the FT put forward as its preferred solution a collective approach driven by defined contributions but providing non-guaranteed schemes pensions – like the state pension.

This is perhaps the most radical endorsement of CDC from outside the small fraternity of enthusiasts known as the Friends of CDC – to date. It is an endorsement based on improving the outcomes of the 10m new savers for retirement introduced by auto-enrolment and not a solution to the issues surrounding the employer covenant behind defined benefit schemes.

For once, the focus was on the hapless saver, a role for which Sebastian Payne had volunteered.

If. like me, you know absolutely nothing about pensions and feel daunted/confused, join our free FT Live session *now* with experts @JosephineCumbo and @ClaerB https://t.co/rziMHJmtvI https://t.co/FRugEJEe1Q

— Sebastian Payne (@SebastianEPayne) April 27, 2021

I’m not sure that Sebastian fully represented the “pension lumpen” but he showed a representative disinterest in any of the “solutions” being put forward to become a self-investing pensioner. Like most people I know, he wanted pensions done for him and was prepared to take a non-executive role in his own retirement.

Most of us, when it comes to personal decisions, find it hard. We can be convinced when shown the economic advantage to us of an employer match on what we put in, to put more in. We can be convinced not to opt-out of our pension saving even if it means slowing our saving for a house deposit and we can even grasp the fiscal advantage of salary sacrifice, when that advantage is passed on to us. But beyond that it’s hands off – both in terms of investment and – so it seems – in retirement decision making.

Which of course is not what DC is supposed to be about. The FT seminar spelt out the alternative to engagement , an awareness of what needs to be done and a willingness to trust others to do it. Which is how CDC works (and why for many, DC doesn’t).

The pension industry response

I was frustrated to see response to the FT’s initiative being so feeble. Far from engaging with the issues that Jo, Claer and Sebastian were grappling with – issues of everyday people. The debate moved to discussions over whether the University Superannuation Scheme would move to CDC and was quickly mired in politics.

It does thanks and I think it confirms my point that USS would have a problem with going CDC – wonder why none of the CDC advocates are talking about this?

— Steve Simkins (@sus_pension) April 27, 2021

Jo Cumbo had to intercede and explain that what she had written and what she would be discussing was not to do with USS.

Sam is right the piece looks at the general landscape for DC, and not at the prospects for USS, in particular.

— Josephine Cumbo (@JosephineCumbo) April 27, 2021

What the FT seminar was saying is that CDC , despite it being received as a political solution to the Royal Mail industrial dispute, is not a tool for employers to de-risk liabilities , but a means for those saving for retirement to make sense of that saving in terms of pensions.

It is a shame that in the febrile hot-house of USS politics and in the pension industry’s debate with itself over guarantees, the wider DC picture is being ignored.

A word about the LCP conference

I was a little disappointed that LCP ran their DC conference with no dedicated session on DC. This may be pragmatic as it focused very much on what employers and trustees can do right now (and clearly we still await the roll out of secondary regulation allowing multi-employer schemes to incorporate CDC).

What was said about CDC, was said with little enthusiasm or passion. It is clear that even a consultancy as progressive as CDC , still struggles to understand what it is like not to be a pension expert!

This conference comes round but once a year (and we missed last year). Which means an opportunity lost to consider the alternative to setting up investment pathways – or whatever the PLSA’s variant might be.

I would urge Laura Myers, Steve Webb, Dan Mikulskis and the many blue-sky thinkers within LCP to think of alternatives to engagement. Whether we think of everyday people as “lumpen” or “non-exec”, we have to accept that most people do not want to make strategic decisions about how they invest or how they disinvest their retirement savings.

Most people, like Sebastian , want things done for them – so they can get on with their lives without having to worry how to pay the bills in retirement. If we can focus on that simple truism, then we can start making sense of CDC.