Why the new CDC consultation is a non-starter


This vehicle will not leave the garage

The problem for the CDC consultation is clear before we open its foreword. We hear who the consultation is designed for

  • pension scheme trustees and managers, particularly those from DC Master Trust schemes
  • pension scheme service providers, other industry bodies and professionals
  • employers who sponsor an occupational pension scheme, and
  • those seeking to establish a CDC scheme

The audience for this consultation does not include the consumer or any consumer representatives. This is not designed for the people who make the one CDC scheme in the UK – the 100,000 plus postal workers , nor for Terry Pullinger, the man with the outstanding vision to sell this scheme to the CWU , it is not aimed at the small group of iconoclasts who have been called the “friends of CDC” .

It presupposes that there are people “seeking to establish a CDC scheme”, but I do not know one person who is seeking to do that, and I know a lot of people. What people like me and Adrian Boulding and Claire Altmann and Mark Johnson and Con Keating and Philip Bennett and Simon Eagle and David Pitt-Watson and Hari Mann have in common is that we want it to become attractive to certain people to open the door and let people into risk-sharing arrangements. But do we want to go through the TPR’s CDC code and establish a scheme – not on those terms!

So the DWP starts on the wrong foot. It cannot suppose that there is demand, for there is no demand. There was no demand for auto-enrolment before auto-enrolment, no-one wanted Nest before Nest was set up. CDC will happen when the barriers to setting up an arrangement become low enough to justify the potential benefit of such an arrangement.

I use the word “arrangement” as it is the word the OECD use. It is not exclusive. A scheme establishes an arrangement that pays non -guaranteed pensions as an extension of occupational pension schemes as regulated by the Pensions Regulator and most people do not relate to schemes or trustees or even employers, they think of their pension either as an amount of money paid into their bank account each month or a pot of money from which they can draw cash when its needed. The notion of “schemes” is a construct of the DWP and TPR which is increasingly out-dated, nobody thinks of Nest and People’s Pension and Now as schemes, they think of them as workplace pensions (though they don’t yet pay a pension).

Moving on

Having defined the CDC consultation as exclusive to consumers and inclusive of those who still see DC saving as into “schemes”, the foreword is an improvement in at least mentioning the people that CDC is for. For the first time…

single or connected employers can set up a pension scheme with fixed costs, which also allows members to have the security of an income for life in retirement, without having to pay for expensive guarantees or members having to make complex decisions about how their pension is invested.

I don’t know if Laura Trott wrote this foreword but if she did she should be congratulated, it is the only part of the consultation that intuitively makes sense.

The problem of course is that the demand is from savers , and the opportunity is for employers. Show me the employer who wants to offer this as an employee benefit. There is one, and it has done so to ensure the future of Royal Mail. The Royal Mail CDC was forged from an existential threat to the company’s future, the DB pension threatened to bring the company down.

The foreword from MfP Laura Trott, laudably sets out  DWP’s intention that

more members will be able to benefit from the opportunities of sharing risk. This means their pension savings work harder for them, and provide, on average a better outcome for their retirement than might otherwise be available.

But “members” implies “schemes” and that implies “employers” behind such schemes and this is where there is no evidence whatsoever that there is demand for CDC. So the intention that

our CDC framework could be adapted to allow more employers of all sizes to offer CDC schemes, and to allow more flexibility in design

is wrong.

Employers do not see it as their responsibility to introduce risk-sharing arrangements with their staff. They don’t because – beyond the financial risk associated with paying contractual DC promises, employers do not want any pension risk on their balance sheets and employers tell me and the DWP again and again that they do not trust a Government who has already turned a risk sharing system (DB pre 1994) into a system of guaranteed pension – with the employer doing the guaranteeing (DB post 1994).

No employee is going to see a CDC scheme as an employee benefit, the employee participating in one of these multi-employer CDC schemes is going to see a pension arising from the employer’s contributions and expect that their pension is provided by their employer.

People do not have the interest , let alone the technical expertise, to disassociate an employer funded CDC pension from an employer funded DB pension and employers know it.

Two things have to be taken out of the equation for CDC to prosper in the UK

  1. Employers
  2. The CDC framework

I have given up on CDC in the UK as an employer funded phenomenon , for the reasons stated, but I have also given up on any commercial entity wanting to engage with CDC so long as the CDC framework is in place. It is a piece of regulation in place to allow Royal Mail’s CDC to operate, but it is not regulation that any master trust would be prepared to sign up to. It has to be put in a box and renamed “the CDC framework for Royal Mail”.

This consultation is wrongly conceived and will have absolutely no impact

It is founded on two contentions which need to be challenged

  • there is strong interest in whole-life CDC schemes catering for multi- employer schemes; and
  • there is interest in the potential for CDC decumulation-only arrangements. However, detailed proposals have yet to emerge in this respect

Show us where there is any interest from employers or master trusts in whole-life (ex Royal Mail style) CDC schemes?

Tell me why you are ignoring the CDC decumulation- only arrangement designed by Mark Johnston of Just?

I’m sorry DWP, but I don’t believe you have got to first base on this. CDC master trusts on the basis you are talking about are a non-starter and non-guaranteed pensions   funded by DC pots are not gong to happen through the CDC framework.

There is an enormous appetite for a means to turn pots to pensions and Laura Trott is right as seeing something that consumers want and need.  Consumers are being sold workplace pensions that don’t offer pensions – that’s a risk to Government.

Government needs to work out what this consultation is really about, ditch the employer, agree to start a new framework – preferably not called “CDC” and then we can make progress.

CDC needs a new driver and a new highway code

About henry tapper

Founder of the Pension PlayPen,, partner of Stella, father of Olly . I am the Pension Plowman
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