Who will be talking?
I’m very pleased that Simon Eagle is going to speak with me at Tuesday’s Pension PlayPen coffee morning . He’ll be speaking about CDC pensions for people with DC pots.
Simon is pensions actuary, WTW Senior Director and heads WTW’s GB Collective Defined Contribution (CDC) pensions team. Building on his work advising Royal Mail on CDC since 2017, Simon works with a broad group of organisations on the development of CDC pensions.
What will we be talking about?
We are at a tipping point in the development of DC and the fulcrum is the point when people want to start spending their pot. This need not be called “retirement” though it could be the point at which someone feels they’ve earned enough to stop work.
Let me explain what I mean by a CDC pension.
It is not just another way of spending a pension pot, it is an exchange of all or part of the pot for a wage for life paid by an organisation as a pension according to rules set out at the point of exchange. So it is a type of pension like an annuity,
But it is not an annuity as an annuity , even an investment annuity , is backed by an insurance company and features some kind of external guarantee. The CDC pension has no such guarantee and has no backing other than supplied by the pool of savers who join the CDC pension.
Like an income drawdown arrangement , income comes from a fund but it is not drawdown as the income provided is determined by the provider of the CDC pension and depends on the age and life expectancy of the potential pensioner or pensioners (partners can be designated to inherit the pension). The income also depends on the how much the pension aims to go up by. CDC pensions
A CDC pension is neither an annuity or a drawdown arrangement , it is a “done for you” product that aims to pay more than an annuity for as long as you live.
And there are times when such a product will be helpful to people and times when it is not. Which is why it will not be compulsory, as annuities were compulsory prior to the 2014 budget. If you don’t like the idea of a pension that could go down as well as up, you shouldn’t exchange your pot for a CDC pension.
If you would prefer to see a daily fund value from your DC pot you should not buy a CDC pension , you should set up a drawdown arrangement which will be more flexible than a CDC pension. CDC pensions normally ride out market downturns by adjusting the expectations of increases in pensions , it is rare that they will have to reduce the pension pay-out year on year.
I say all these things because there is confusion between a CDC pension – which to my mind is a fund you transfer your money into, and a CDC scheme , which is a way of building up a sum of money which becomes a CDC pension. CDC schemes are a type of occupational pension scheme (the first of which will be Royal Mail’s). A CDC pension (aka a decumulation only CDC) need not be a scheme but can operate as a fund and be regulated by the FCA as a fund.
There has been a lot of confusion about the difference between a fund and a scheme, so to make things clear, CDC Scheme is a mechanism that looks like a workplace pension and is what the Royal Mail are setting up.
While a CDC fund is a consolidator fund into which you transfer your pot(s) from retirement savings in return for a wage for life.
This is the kind of pension we will be talking about on Tuesday. It may not be the kind of pension you would buy and you may find it the kind of pension no one should buy. Your views are most welcome even if you are opposed to this kind of arrangement.
But Simon, myself and a lot of other people feel that the time for this type of pension to be launched is now and we are determined to press ahead, despite the considerable headwinds which blow in our faces.
We look forward to seeing you at 10.30 am on Tuesday 15th November on Teams, You will be able to join the event at no cost from http://www.pensionplaypen.com – look out for further news.