In this article, I look back to the bad old days when people who didn’t choose got “clubbed” by insurers . I look forward to a system that ensures everyone gets a reasonable pension for their savings , whether they choose it or not.

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What a rip-off “money purchase” could be!

It’s worth remembering what happened in the bad old days when a money purchase scheme meant you “purchased” an annuity. Typically you were put into an insured occupational pension run by an old fashioned insurer (a CIMP or COMP) and when you got to your scheme retirement age you were offered an annuity from the insurer of your scheme. In the small print you might be advised to use an open market annuity option which meant you could shop around for the best rate. Few people did and the practice of offering dud annuities to the mug punter became known in insurance circles as “seal clubbing”.

For reasons, the FSA could never work out, people chose the devil they knew , even though it might be wearing a tee advertising “I club baby seals”

Because these people did not have advisers – were vulnerable and most are now surviving on very poor annuities.

The seal clubbers have retired on handsome DB pensions and we now have a consumer duty that will ensure that such iniquities will never happen again (ahem).

But  was it much worse  than the current state of affairs?

In the old days, the baby seals poked their head out from the ice and got clubbed, but though they got a headache, they did get some sort of pension. The pension freedoms meant that they got a pot which was all very well as long as the pot doesn’t get lost or cashed out creating more headaches from the taxman.

We all know that the current system doesn’t work very well unless you are smart enough to know your investment pathways and can consolidate your pots to keep some semblance of organisation over cashflows. Without a dashboard and with woefully inadequate choice architecture, those with too little to warrant the attention of an adviser are drawing down i the dark

Getting the balance right.

We need a standard way to turn our pot to pensions and a dashboard showing people other options. The standard way should be a variant on CDC which experts call “decumulation CDC” and is at its simplest ” a pension without guarantees”.

Other options should include an annuity league table, a list of financial advisers open for a conversation and  some modellers for those who want to work out the tax implications of cash-out and the import of making an actuary and CIO of yourself.

That dashboard should have on its central dial quotes from other CDCs into which the saver can tip his/her pot(s). And those other CDCs should be displayed in a standard way that makes comparisons not just on price but on value too. Consumer friendly league tables, as operated by Which could work not just for annuities but CDCs too, provided that a market has formed,

CDC may be a regulated product, but not all CDCs will be created equal. Smart analytics will be able to work out which CDCs have a sustainable proposition, distributing sensibly relative to fund performance and scheme demographics.

And the same principles that apply for workplace DC should apply to CDC, a value for money framework can be in place so that arrangements that aren’t cutting the mustard are merged with those that are – with proper measurement of such factors visible to all savers.

What if workplace pensions offer CDC as their default?

A non-guaranteed pension  seems to me the obvious default for middle England’s pension pots. This would mean that those who look no further than the obvious option, those who have been clubbed in the past, will have the pension “that is right for most people”.

If CDCs operate as funds into which pots can be invested, they can sit on any investment platform, including workplace and non-workplace GPPs . So they become the option that advisers compare their solution to.  In practice, the consumer duty is likely to come down to benchmarking the advised proposition with the non-advised.

The CDC or “pension” rate , could be compared by advisers with the annuity rate and their advised rate of drawdown so that people could choose what level of certainty they wanted relative to the flexibility of one or other of the drawdown variants.

I see this as progressive , both for savers and advisers. It certainly beats the seal-clubbing of the past