Here is the full video of the debate on retail CDC that took place on http://www.pensionplaypen.com this week. I agree with Adrian Boulding
I’ve just come from a great Pension Playpen CDC coffee morning with Simon Eagle. We made real progress identifying the issues that must be sorted to get Decumulation CDC launched. pic.twitter.com/zVUTV9mXOT
— Adrian Boulding (@AdrianBoulding) November 15, 2022
There has been some debate as to the relevance of Adrian’s choice of photo. I take it to mean CDC should aspire to be a “piece of cake” for those who use it.
Watch the video to find answers to the following questions put to Simon Eagle during the meeting
- What does Simon and Willis Towers Watson mean by a CDC “product”
- Would a CDC product be subject to DWP regulations and TPR guidance or the fund rules and guidance established and regulated by the FCA?
- Cam income be smoothed or day to day payouts from a CDC product need to be linked with the market value of the fund?
- What target return would be used for pricing purposes?
- Should CDC returns be underwritten for health purposes?
- How could users of a CDC arrangement know where the fund was in the smoothing cycle?
- What would be the distribution strategy to get scale into a CDC product?
- Could this be the new default decumulator to replace annuities?
- Is retail CDC better thought of as a replacement for annuities or drawdown
- When could a retail CDC product be available in the UK?
The “nitty-gritty” of a CDC fund is likely to be explored by the DWP in their forthcoming consultation on retirement income (due early next year).
In my view, the consultation needs to be conducted in parallel with product development. The market for the product is clearly evident by the mess created by non-advised drawdown as evidenced by the most recent iteration of the FCA’s Retirement Income Market Study.
Work being conducted in Australia and Canada has concluded that what people need is what Simon Eagle is advocating
- A product that does it for people – “it” being converting capital into income.
- An income that lasts as long as people do
- An income that pays more over time than an annuity.
Only the CDC model can do this for individuals. Pension PlayPen is committed to the delivery of this idea in as short a time as possible.
I’m sure the picture wasn’t designed to suggest we have our cake and eat it.
But seriously isn’t the high level message that this is a product for people with a high risk tolerance. They can expect better outturns than with annuities but with more risk – the risk (a) that they end up with less than an annuity would have delivered and (b) the volatility so that their pension or pension increases yo-yo in a way that would not be tolerable for a low risk pensioner.
So it’s right for someone like me – but aren’t already comfy with income drawdown because I’m savvy enough to moderate my drawdown if the funds decline a bit?
My credibility gap is with the risk intolerant pensioner for whom I don’t see pensions in payment CDC doing anything acceptable given there are no free lunches for saving.
One of my early jobs working at a large insurer was dealing with the complaints from customers who had bought a level annuity in the 1960’s, lived through high inflation in the 1970’s and then arrived in later life in the 1980’s complaining that their pension bought very little and had never been increased by my employer. When they wouldn’t take “no” as the answer from our customer service desk, they got escalated to me as “The Actuary”.
Inflation is one of the risks that Decumulation CDC is trying to mitigate, and so it may be suitable for a low risk pensioner that can’t tolerate inflation risk. I agree with Peter that Decumulation CDC will not be suitable for everyone, but I rather doubt that Peter is the main target customer here.
Thanks Peter and Adrian- you have different views as actuaries – that is proper. The recent failure not to honour the inflation leg of the triple lock was not met with rioting in care homes!
Would you envisage trustees to be advised with the same ones as DB?
Read this FT article and in particular the comments.
Apollo was a major buyer in UK pension fund fire sale
Do you envisage a CDC a protection fund to catch the failures?