What would a Royal Mail insolvency mean for CDC?

Royal Mail bosses threaten to declare insolvency as pay talks near collapse

Talks with union over pay and working practices are on brink of collapse and special administration has been explored ; The Guardian

Delays with implementing Royal Mail’s CDC scheme.

The headline , which appeared late on Monday in the Guardian’s digital edition is alarming.

It’s five years since the pension deal between the Royal Mail’s principal union, the CWU and its management , was reached. The deal was that the Union recommended staff to recognize a new kind of non-guaranteed pension termed CDC, rather than continue with limited DB accrual (into a cash-balance plan) or into a workplace pension, then with Zurich, now with Scottish Widows.

The deal was supposed to usher in a new period of stability in industrial relations and a better pension scheme for all.

But much water has flowed under the bridge and despite huge amounts spent on getting regulations in place , CDC – as originally envisioned – has yet to be launched.

Just what a declaration of insolvency by the Royal Mail would mean to the current pension arrangements is hard to work out , but it looks like yet another reason for the implementation of the CDC plan to be deferred.

The DWP have recently closed its consultation on how CDC might be broadened in scope beyond the single employer whole of life variant that Royal Mail is looking to introduce, but enthusiasm for using the Pension Regulator’s CDC funding code is limited. In practice, CDC has become so regulated that most commercial master trusts are taking one look at the undertakings  needed to comply with the Code and walking away.

A lost cohort of pension savers

The introduction of the pension freedoms was supposed to usher innovation that would mean new types of pensions would be created to rival and supersede the annuity.

This hasn’t happened. The CDC Code has effectively stifled that innovation and sadly, the Royal Mail CDC scheme is now becoming a roadblock to progress. Until their scheme is up and running, other corporates are holding back from applying to the Code and news that Royal Mail’s covenant to meet its CDC obligations may be in danger, suggests that the road won’t be cleared any time soon.

In the meantime, hundreds of thousands of DC savers, Royal Mail DC savers among them, are waiting for something to turn up to help them turn their pots to pensions.

We do not know for sure what this cohort are doing with their pots but from what we can see from the FCA’s Retirement Income Study, most pots are being used to pay tax-free cash and little more, what drawdown that is going on, is being managed by IFAs or by DIY spenders establishing drawdown rates that are typically 8% of the capital available.

TPR does not collect data on what those with occupational DC pots are doing. Trustees are under no obligation to offer so much as the “investment pathways” available to those with personal pensions who do not take advice. The fear is that huge amounts of money are stored in schemes – often in de-risked assets – awaiting clarity on what to do next.

The current cohort of savers, with spendable pots, are “lost” and awaiting redirection while we sit in a policy vacuum.

The progress that was made in 2017 and 2018 which led to a new kind of pension scheme becoming available, has been painfully slow. It is to be hoped that it does not stall altogether as a result of Royal Mail’s covenant problems.

Meanwhile, the Government is seeing CDC’s poster-child , losing its allure. The future for CDC looks bleak without a re-think.

About henry tapper

Founder of the Pension PlayPen,, partner of Stella, father of Olly . I am the Pension Plowman
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4 Responses to What would a Royal Mail insolvency mean for CDC?

  1. John Mather says:

    I was hoping to see the answer to the question
    What will happen?

    • henry tapper says:

      If there is no employer – then CDC on an “employer funded” basis cannot happen. It is hard to see us losing the service provided by Royal Mail but whether Royal Mail would provide it – if it became insolvent – is one thing. Even if it survived the insolvency event , would it fund the CDC scheme at proposed levels? I don’t know John.

  2. The point about drawdown from retirement pots is well taken. There seems to be a set of strange ideas about de-risking, starting with target date funds which assume that at retirement a fund should be in virtual cash, probably a hangover from the days of a compulsory annuity. But from age, say 60, people can expect to live 25 more years. So is it right to assume that inflation won’t occur or that capital markets will be flat. I’m 82 and glad that my fund, which remains largely invested, has continued to grow and this able to fund increased drawdown.

    • Eugen N says:

      @Mark, probably you are glad that stock markets were nice to you, when you retired, maybe 20 years ago, they went up and up with a short blip in 2007/08.

      Markets are close to a bubble at the moment, it would not be a similar story.

      Annuities are back for people who need guaranteed income.

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