What does “taking CDC out of the hands of actuaries and lawyers” mean?
— Mike Harrison (@HigherEdActuary) August 20, 2022
Mike usually picks up on the real point I am trying to make in a blog. A couple of blogs back I commented on a article written by David Pitt-Watson with help from Hari Mann with their “RSA CDC Forum” hats on.
I am worried about forums which are funded by their participants as they exclude people who do not have the price of admission. Lawyers and actuaries will pay the price of admission because that price enables them to place a moat around them and own the debate.
Instead of becoming a forum, a pay to participate group becomes a fortress.
Having achieved a success with Royal Mail, a success that was crafted out of the political opportunism of certain actuaries and lawyers looking to avoid a damaging pension strike, the CDC lobby is in danger of missing its open goal.
The open goal is that its product is something that – given the choice – many people would choose. Taking the fear of running out from pension drawdown, offering the prospect of a better pension than from an annuity and who would not consider a CDC pension?
Critics claim that it gives false hope because it offers no guarantees and still transfers investment risk from pension scheme sponsors or insurers to individual savers. But that is to live in a past where DB pensions and annuities were affordable and valuable.
Critics also claim that the scheme sponsored version of CDC promoted by the DWP and TPR’s CDC code is aimed at employers and that employers are not interested. In this they are currently right (though there may be enough interest over time (the article’s point).
But most people have no likelihood of ever being in a CDC scheme or even in a DC scheme with a CDC scheme tacked on for “decumulation”. There is little appetite for that among employers and master trusts who look at the substantial costs inherent in the CDC funding code and say – “no thanks”.
For most people, their retirement choices are dictated by their financial adviser or laid out by their provider as one of four investment pathways – cash-out, leave your pension to your kids, spend your pot via drawdown or purchase an annuity.
In answer to Mike’s question.
CDCs can be designed in one of two ways. They can either be schemes run by actuaries and lawyers (with trustees their to make sure the rules and the sums are working), or they can be run by fund managers with the aid of algorithms of with discretionary management). The discretion is likely to be managed by actuaries and the algorithm created by an actuary but the fund itself is simply another investment pathway chosen by a saver with his/her workplace and non-workplace pots to fund it.
The RSA CDC Forum is currently thinking of CDC development as in who will be the next Royal Mail. There may be another but there won’t be many and we won’t be seeing the British Pension System changing any time soon.
However, the idea of a CDC fund as an investment pathway offering “better pensions than an annuity without the risk of money running out” would change the British Pension System.
But for that to happen, we’d need to lever the actuaries and lawyers out of it and allow CDC to become an option that savers, rather than employers chose. We need CDC to be a pension for savers rather than the lovechild or lawyers and actuaries.
