After 10 years of talk – it’s time to give CDC to the FCA.

It’s more than 10 years since the DWP invited a consultation on “reshaping workplace pensions for future generations”. A generation of savers has come and gone since then.


Trawling through my archives I found this clip, with a photo of Steve Webb at around the same stage of the parliamentary cycle as Laura Trott finds herself now.


In the 9 years between these articles, CDC has yet to attract one member.

What happened – or didn’t happen?

The legacy that Steve Webb left was not a useable CDC framework that workplace pensions could adopt but the mess of a thousand flowers blooming in the re-wilded landscape of  “defined ambition”.

Looking at the composition of the Defined Ambition working group it comprised two people who went on to be directors of TPR and two chair of the consulting actuaries.

Though it resulted in diversity of ambition, it sprung from the group-think of a small number of like minded people.

A thousand flowers blooming

The proposals were theoretical but not practical.  This happily forgotten episode in UK pension history meant that CDC could be scrapped by Ros Altmann- along with the hair-brained nonsense ideas in the  defined ambition cornfield. It was a case of throwing an orchid out with the ragwort.

So CDC – instead of being introduced in an orderly and planned way, arrived as a demand to prevent Royal Mail going into an industrial relations tailspin.  Royal Mail promised to subsidise the costs of drafting legislation and devising a code for itself and the DWP took the credit for sponsoring innovation.

As a proof of concept – Royal Mail’s CDC scheme is pretty weird. Normally you start simple and build out, with Royal Mail you start complex and everything that follows looks easy.

In retrospect, Royal Mail should have had its own statute , permitting it to run a CDC scheme in its own way.  Instead we have legislation and a CDC code that allows us to run CDC schemes the Royal Mail way.

Whatever we get as a consultation in the autumn will attempt to create conditions for smaller organizations to join CDC master trusts and DC master trusts to run CDC sections for savers who planned on a workplace pension (rather than a workplace pot).

What is the problem CDC is trying to solve?

CDC is not a way for insolvent DB plans to escape the PPF or an upgrade for well funded DC plans or even a third way for hybrid pension plans which offer both DB and DC to their members.  Nor is it a way to introduce productive finance into DC via the backdoor.

The CDC funding code saw to that. The eye-watering barriers to entry have priced CDC out of the market for all but a handful of uber-committed employers. We have yet to see such employers express an interest in getting authorised to run a CDC scheme, Royal Mail is one of one and is likely to remain so.

But the need for people to have pensions from their pots did not get abolished with introduction of the pension freedoms. Nobody will ever have to buy an annuity again , but most people need an income when they stop work and most people need more than the state pension will offer them,

CDC could have become the funded alternative to s2P/Serps, (which was the other casualty of the coalition Government). In a parallel universe, workplace pensions could have been CDC pensions which really would have meant VFM was measured on pension outcomes. But that moment passed when the DWP’s 2013 consultation on what workplace pensions should actually produce, failed to find an alternative to “annuities”.

The defined ambition solution wanted to solve all the problems people had with retirement saving but ended up solving none of them. The missed opportunity was to convert a money purchase system (with the purchase being an annuity) to a DC pension system, with the purchase being a non-guaranteed pension.


The way forward for CDC

For a decade we have considered CDC a kind of workplace pension. The workplace pension system is working ok, doing what it’s supposed to do – powered by auto-enrolment.

The problem is not with the workplace, the problem is with the pension – which frankly is none of the employer’s business. We are too far down the line with workplace pensions to switch to whole of life CDC saving today, It’s a myth to think of CDC as a replacement for a DC or DB savings plan. It is infact the replacement for the annuity.

It is also a myth to think that collective products are the province of TPR. Pooled funds, bulk annuities and GPPS are all regulated by the FCA as retail products that provide VFM through scale. The FCA oversees annuities and should oversee CDCs, not as insured products but non -insured open ended annuity funds.

CDC, or at least the kind or CDC known as “decumulation only”,  is just another  product that should fall under the consumer duty.

TPR can continue to service the needs of the small number of employers who want to provide a CDC pension – either directly via its own trust – or through a master trust.

But the CDC product that turns pots to pensions is probably already regulated by the FCA. It has variously poked its head up – as a unit linked annuity, a with profits annuity and a variable annuity. The challenge is to recreate this product, without an insurance guarantee,  in such a way as it becomes the default retirement savings vehicle we’ve been searching for since 2015.


About henry tapper

Founder of the Pension PlayPen,, partner of Stella, father of Olly . I am the Pension Plowman
This entry was posted in pensions and tagged , , , , . Bookmark the permalink.

Leave a Reply