IFAs looking for alternatives to drawdown

Posted on September 2, 2021 by henry tapper
Rachael
Dave
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Hilary

I’ve been following a debate on twitter which includes several friends. Following rather than participating as I suspect I would express myself too vehemently and spoil the delicate balance that has been maintained between skepticism and endorsement of a third “collective” way to decumulate.

That this debate is happening at all , is encouraging. That it is happening with such nuance and without polemics is surprising . Judge for yourself.

Preserving threads such as this takes skill and a kind of chairmanship, thanks to Dave Brooks for performing that function well. It’s clear that IFAs are not getting information on CDC and it’s interesting to know why. I haven’t read much debate on CDC as a decumulation option in the IFA trade press and mainstream pension providers are clearly not considering this as part of their product set (indeed they may consider it a threat to existing income streams).

Importantly, the FCA has said virtually nothing about CDC, focusing on investment pathways. But that might change if – after the autumn consultation with master trusts- Guy Opperman and the DWP push on with plans to offer scheme pensions to those with pots governed by the master trust assurance framework.

I am neither surprised nor disappointed by the  final comment in the thread from Stuart Holbrook.

The challenge is clearly articulated. We will watch with interest whether attitudes change with time and whether CDC moves from being an occupational scheme issue, to a matter for individual savers to consider.

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 IFAs looking for alternatives to drawdown

  1. John Mather says:
    September 2, 2021 at 7.32

    I can see why this concept could be advocated by someone giving guidance but If those advocating the CDC could write the draft “reasons why letter” for consideration then it might help the IFA to understand why he would risk his house (compensation) on giving the advice

    Reply
    • Eugen N says:
      September 2, 2021 at 7.32

      @John Mather

      We are not risking the house by not recommending a CDC!

      First because there is none. Second, having read the Pension Act 2021 (section 2), it seems that it could only be an occupational pension scheme established for a single employer, or two or more employers connected with each other.

      So there cannot be any other personal pension scheme used for drawdown or some sort of multi-employer scheme opened for everyone to join. It is pretty clear what it is.

      I understand rather well the concept, and I can explain well why it will not work. For this to work, similar as with DB schemes, you need to have an employer with an infinite lifetime. Unfortunately, companies have a life shelf, they do not last forever, because companies get disrupted. Royal Mail will get disrupted too, and won’t last that much as some people think although it offers a service which may still be needed: sending packages around, as letters are very few nowadays. As companies die, the supply of new workers into the scheme dies too. The statute has a few options for this, including winding up (which will be the most likely outcome), and the “closed scheme” (not sure who is going to pay the scheme expenses, probably the members by increasing the charges).

      My bet is that even with a CDC scheme running, more than 50% of members will not take benefits from the scheme, but access the fund flexibly by taking a transfer. It is the people behaviour which leads to this (prefer own funds versus scheme pension, even if the trade off is rather poor when doing this), the lower credibility in scheme pensions, their lower risk tolerance, and other beliefs which will lead to this outcome.

      “
      (2)The scheme must be an occupational pension scheme established under an irrevocable trust by a person or persons to whom section 1(2)(a) (employer) of the Pension Schemes Act 1993 applied when the scheme was established (without other persons).

      (3)The scheme must be used, or intended to be used, only by—

      (a)a single employer, or

      (b)two or more employers that are connected with each other. “

      Reply

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