So what does Aon mean by “the industry”?
It’s in the nature of large consultancies that when they think “collectively”, they think of employers. Pensions have been “occupational” for generations and occupational pensions speak collectively as the “pension industry”. But it would be wrong to think employers are the only “collectives” considering “collective” solutions to the provision of retirement income.
There is an insurance industry as well , for whom pension have long been seen as an insurance against people living too long and there is the Government which has, to use JS Mill’s phrase, “the right to use reasonable force” to ensure people do not fall into dependency in their later years. I would characterize this approach to collective pensions as the instinct to mutualize the problems of living longer or shorter than expected,
We can see at least three different interest groups with an interest in making pensions happen and though there motivations may vary , they are aligned in wanting to secure a retirement income for life. This is where pensions are very different from the drawdown of income from a fund.
So far, CDC has focused on the needs of employers, not the societal needs of keeping older people from being a financial burden or the individual needs of savers to make their money last as long as they do.
Quite why the employer is being prioritized to such a degree isn’t obvious to me. Here’s the Aon press release.
Aon has said that responses to the online quiz it launched in July this year have shown a strong appetite for Collective Defined Contribution (CDC) and for the next phases of legislation to enable its wider application.
Aon launched the ‘Is CDC right for my scheme?’ quiz to give UK employers and pension scheme trustees insight into how a CDC scheme could meet their future needs. With responses to the quiz from over 400 participants, the results show that more than 50 percent of respondents wanted the next phases of legislation to enable CDC to proceed – these would make it accessible beyond a single-employer structure. Only 13 percent of respondents saw no compelling reason to consider CDC at the current time.
There follows an observation that I think defines explains interest in CDC in quite different terms..
“We have also seen a strong expression of interest in variations of CDC to help address employers’ and schemes’ specific needs.
Among our respondents, 36 percent saw the benefit in setting up a single-employer CDC scheme to support their workforce. Another 26 percent would opt for a multi-employer CDC arrangement where, for example, they could benefit from being part of an industry-wide CDC scheme or one set up by a commercial master trust. A further 25 percent of respondents saw the value of CDC in the pension decumulation phase – and particularly in exploring the possibility of an option for their employees to buy a CDC pension at retirement. This latter form of CDC would be best delivered through commercial master trusts.
We need to start thinking of the industry in terms of insurance and societal needs as well as meeting the needs of employers. That is not to down-value the importance of employers or of Aon’s work which is entirely helpful.
But CDC as a concept was conceived as a means to provide a wage for life for a fixed set of payments , not as a way of “employers and scheme specific needs“.
Much of the interest in CDC expressed by those quizzed relates to people purchasing a CDC for themselves. Much of the interest in CDC from Government may emerge from the shambles that is emerging from the pension freedoms.
Employers may have a considerably smaller role to play in the development of CDC than is currently envisaged. For this to happen, we need to stop thinking of CDC just as occupational and start to think of it in terms of insurance and social policy.
So do we need to think wider than master trusts as a means to access CDC, I think we do!