A* for consultation on “at retirement” options. Trott nails it.

How the CDC pension was introduced by Government – sound familiar?

In 2022 the Government ran a call for evidence 

This call for evidence has been launched to explore what support members of pension schemes need to help them make informed decisions about how to use their savings. It will also seek to understand what support and decumulation products are currently on offer to members, and what may be offered to them in the future.

The outcome of which is …

A consultation

Helping savers understand their pension choices: supporting individuals at the point of access

  • a response to the products and services element of the call for evidence on Helping savers understand their pension choices
  • a set of policy consultation questions on support and products to be made available to members of occupational pension schemes
  • an exploration of next steps

A vital topic in danger of getting buried.

This consultation is likely to get buried by the avalanche of “Mansion House Reforms” and it shouldn’t be. People looking to switch from saving into to drawing money from their pension pot, are having a hard time working out how to do things. Many of them, including me, are doing nothing, waiting for something better to come along than the investment pathways currently on offer.

Here we have Government’s answer to what they think we need. Here’s Laura Trott in her forward

I am launching this consultation to set out our proposals for, and seek views, on a decumulation framework that will provide support at the point of access.

In addition to the existing choices available to members under the pension freedoms, this could include an offer of a Collective Defined Contribution (CDC) arrangement in retirement. My objective is to help savers achieve better outcomes through provision of CDC, where members can benefit from greater investment opportunities and consolidation in the market whilst supporting the wider government agenda around productive finance.

That was not the answer that I was expecting but its the answer that I want.

As I recently blogged, CDC is to me a means to provide me with a wage for life that lasts as long as I do. I can get that from an annuity but I do not want to buy an annuity, I want a better pension from my pot and I’m prepared to trade security for better income and a promise my money won’t run out.

If the result of this consultation is that CDC is formalised as an investment pathway, that will suit people like me, who know what they want. But it will not result in widescale pick-up on CDC, for that to happen there will need to be changes in the choice architecture for people in workplace pensions who don’t take advice.

So what is the Government proposing by way of choice architecture?

Our aim, through the proposals presented in this consultation, is to establish a broad alignment in the service offer among different providers where every pension scheme, either directly or through a partnering arrangement, provide decumulation solutions for their members. We are however not looking for precise consistency across schemes as we recognise and believe schemes should adapt the offer based on their membership.

So the Government want consistency without being prescriptive , a tough balance which relies on trustees knowing what their members want (most don’t).

But I take it from what follows that trustees will be required to show some courage in their conviction

Our view is that in the case of decumulation the pension scheme must provide a solution, or set of solutions, that aims to deliver what the member wants to achieve from their later life income.

This will ensure every member of an occupational pension scheme has access to a decumulation solution should they
not want to make the often complex decisions, such as investment strategies or levels of sustainable drawdown, when accessing, whilst retaining the freedom to use their pension pot as they wish.

This is a periphrastic and tedious way of saying that there should be defaults for those who don’t know and pathways for those who do.

And it quickly becomes clear that though no one in the DWP (or the regulators) wants to be telling people how to convert pot to pension, they do want people to choose CDC

So the consultation asks

What can government do to help a CDC-in-decumulation market emerge?

The consultation pretty well stops there. The remaining 80% of the document concerns itself with behaviour, with whether Nest should be treated like any other schemes (the post-Brexit answer is “yes it should”) and then there’s the question that haunts the entire Mansion House Reform Framework

My view

A DC workplace pension is just that, a pot of money that becomes a wage for life (unless you opt out of the pension bit).

A pension is  an insurance against living too long – that’s why pensions get tax relief, they relieve society of a financial burden it might not otherwise afford. So there is a strong social argument to expect pots to turn to pensions.

You don’t have to legislate that trustees set a default , let alone that that default is decumulating CDC. But you do need to legislate to ensure that people who don’t make a choice, have a pension “made for them”. That is the lesson of “nudge” and auto-enrolment.

For the best part of ten years we’ve adopted the non-legislative approach and it’s failed. People like me are waiting for something better than an annuity to come along.

I would like Nest to offer me a CDC decumulator and L&G to do the same (my workplace pensions). I’m happy to consolidate to the scheme that offers the best option or transfer away from both if something better is on offer from someone else.

I just want a pension from my pot that lasts as long as I do. Which puts me pretty well where Laura Trott is taking the decumulation debate. Here is a consultation where for once I can say  “I agree with the Government”.


About henry tapper

Founder of the Pension PlayPen,, partner of Stella, father of Olly . I am the Pension Plowman
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2 Responses to A* for consultation on “at retirement” options. Trott nails it.

  1. Peter Tompkins says:

    I agree this is an important subject but remain unconvinced that CDC has anything substantial to offer, especially when annuities are increasingly looking like a smarter product now that interest rates are so much better. The reality surely is there is no space for the current government to fit in legislation and pensions decumulation is unlikely to make very far up the agenda of issues for the new Government to embark on in 18 months.

  2. Stephen Tiley says:

    Annuities are still relatively expensive due to the insurer’s margin, cost of regulated administration (often outsourced by insurers) and the need for a regulatory capital cushion. CDC offers up to 30% more pension based on back testing, but crucially can’t offer that absolute gilt edged guarantee.

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