The Corporate Adviser master trust conference was a success. I will return to sessions earlier in the day but this blog is about a debate between John Ralfe, an opponent of CDC and Simon Eagle who champions CDC both inside Willis Towers Watson and beyond.
The debate was won by a wide margin by Simon Eagle with a large proportion of the audience supporting his contention that CDC was a viable option for people to choose at retirement to be paid a pension purchased from their savings.
Eagle’s argument was that CDC was a “done for me” product that paid a pension till death at a better rate than could be achieved from an annuity.
John Ralfe argued that CDC was the same as DC and could make no claim for providing better benefits than drawdown or an annuity and he put forward in its place a “tontine” which he suggested be established in later life.
Eagle was well prepared, Ralfe turned up with a set of slides that had clearly been used to rubbish Royal Mail’s CDC proposals. I understand that under the rules of the debate, Royal Mail was not to be discussed.
During Eagle’s opening remarks, Ralfe spent time discussing matters with the Chair, John Greenwood. He didn’t seem to pay what Eagle was saying much attention and rather than address Eagle’s contention , he used his opening remarks to promote a private agenda which was off-topic.
It was noticeable that the audience were unimpressed by this. I would have liked to report a debate which focussed on the practicalities of establishing a CDC product independent of a sponsor which any saver with a pot could join. It would have been good to have had a discussion as to how CDC pensions were priced, whether they could include underwriting to give better rates to those with short life expectancies and lower pensions to couples whose pension paid till the surviving partner died. There was an argument to be had about equitability between those within the mortality pool.
It would have been good to have had a discussion about how this CDC product would be regulated, whether through tPR’s CDC code or as an FCA regulated fund (effectively a permitted link). There was a legitimate argument that there is as yet no legislation in place that specifically permits the CDC product promoted by Eagle to exist.
It would have been good to discuss what type of pension provider could introduce savers to this concept, whether it could be a firth investment pathway for contract based plans, whether it might be a default decumulation option for master trusts and other occupational schemes. There was a reasonable argument (put forward by Rob Reid) that CDC would find it hard to get to scale.
It would have been good to have had a discussion around whether and how a CDC product could gain advantage over an annuity by bypassing solvency regulations and whether this was exploiting the same regulatory arbitrage, insurers consider is being created for superfunds (relative to bulk annuities). There was an argument to be had as to whether it is appropriate for CDCs to be invested in growth assets rather than the more conservative asset mix that insurers are required to adopt.
None of these arguments were put by John Ralfe , though they were discussed by the audience and subsequently. Instead, we had to endure a further diatribe about the inter-generational unfairness of Royal Mail’s CDC scheme, a lecture on the (illegal) tontine and a bizarre defence of “DC” which came down to the advantage to individuals of individual choice.
It was as if John Ralfe had turned up for the wrong discussion. He seemed the least equipped person in the room to discuss the needs of ordinary people who find the current investment pathways lacking, in his view we appear to be in an orderly market where people take rational decisions based on pension freedoms – end of.
We need to have this debate again.
This is far too important a subject for it to be treated as John Ralfe did. He was rude to his opponent and his audience, if there is to be a rematch, Ralfe must prepare arguments related to the subject and not use the debate to fly his own kites.
I sat next to a senior actuary at the Pensions Regulator and one of Britain’s top financial advisers, throughout the room were people who want to see innovation in the options savers have to turn pots to pensions.
I do not think that Simon Eagle and WTW have the answer, but they are moving towards it and doing so consensually. There has been strong support for CDC from both the DWP and the shadow pensions minister. The unions support a collective approach and work has been done in progressive pension providers such as Just and Phoenix to come up with a non-insured CDC pension product.
Ironically for someone who has accused CDC supporters of bluster, John Ralfe blustered his way through the debate – relying on his reputation as a financial economist alone. This should not be an ideological debate but one that focusses on the member. As Rob Reid says, the success of CDC depends on it being properly explained in ways that ordinary people understand. We need proper analysis of risk and how choices can best be offered to people waiting for the pension from their workplace pension.