CDC – should the TAX-PAYER pay?

 

Yesterday, as I was walking out the door to the house of actuaries, I wrote down my expectations of the two hour meeting ahead of me.

I called it “CDC- who pays?” because I’m interested in who is funding the set up and running costs of a CDC scheme and what employer has the deep pockets to match the expectations set of it so far (effectively an equivalent of an 80th DB scheme – the bar set by Royal Mail).

I was wrong about the length (90 minutes- I couldn’t stay for lunch) and the breadth of the meeting. In terms of breadth, we were engaging with the recently launched Pensions Investment Review, though rather bizarrely, we didn’t talk much about investment.

Here, as I transcribed it at the time, was what was said by a large panel comprising actuaries and think-tankers.

The update on the update = the TUC agenda (Jack Jones)

1. All reviews should start with state pension
2. DC pensions should be default driven
3. Should focus on member interests
4. Should give an income for life
5. Should close the gaps (inequalities)
6. Should focus on governance
7. Introduction of collective CDC on a sectoral basis (care for instance)
8. Pensions introduced by collective bargaining. (Royal Mail model)

Andrew Harrop of the Fabian Society put the focus on adequacy.

1. A sensible discussion on the triple lock (yearly review not a permeant ratchet
2. Move quicker to where everyone is getting the new state pension
3. Retirement income for life from private pensions (unpick the extremities of freedom and choice)
4. As much as possible by default
5. Coverage – especially by default
6. AE contributions to rise from 8-12% with employer bearing brunt
7. CDC driven by employer and sectors (social care for instance)
8. Better value – investment driven – mix, pooling , whole life.
9. Redistribution of tax-relief
10. Adult social care sector will have protections on pay, protection and collective bargaining on pensions.

Chintan Gandhi –  Aon

1. Getting people into retirement with the dignity of a decent retirement wage
2. Designed round the current contribution system (not by jacking up contributions)
3. CDC inside master trusts and flexible for low earning job-hoppers not able to make decisions.
4. CDC is new and pensions move at a glacial pace – this will change with the launch of Royal Mail CDC scheme
5.  Engaging communications that don’t require advisors essential

Steven Taylor of the ACA

1. Join up the system –
2. Get on with it (24 consultations)
3. PPF or Nest like structure introducing CDC “from the center”.

Debbie Webb of the ACA

1. Improving access to DB surplus
2. Distraction of Virgin Media case
3. If you can’t achieve Whole of Life CDC – you could provide decumulation CDC as second prize (inside master trusts such as Nest)

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Derek Benstead of First Actuarial

1. We need pensions not pots
2. CDC of particular interest to the self-employed
3. To protect future pensions we need active members (currently we are not doing enough)
4. Full DB Schemes – flexible DB schemes – CDC schemes.
5. With PPF in place since 2005 – all the problems with funding targets  are distractions
6. Good regulation should facilitate pension schemes not obstruct them
7. Flexible DB by flexing indexation. (USS are interested in doing this)
8. CDC has gone off half-cock, over-regulating single employer schemes
9. Conversation needed about a national CDC scheme which any employer can join.
10. Regulators should have a statutory obligation to increase the number of people with pensions
11. Pitched for a national CDC scheme which anyone could join – a default CDC provider for CDC schemes go bust.

The meeting was chaired and introduced by the RSA’s David Pitt-Watson and Harinder Mann.

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What we learned

The public sector looks the most fertile area for CDC – effectively funded SERPS.

Royal Mail CDC behaves like a public sector scheme, open DB without the guarantees.

Almost all at the table saw CDC as a DB alternative rather than a DC enhancement. While there were calls for a “pot to pension” decumulation solution, they were few and far between. This kind of solution was described by Debbie Webb as “second best”.

So it wasn’t surprising that most of the conversation centered around CDC as a whole of life alternative to those without access to a DC workplace pension, carers, the self-employed – there were calls for what sounded like a funded equivalent of SERPS (from Derek Benstead).

This version of CDC, filling in the gaps of provision would ultimately be established by the agency of  Government, the tax-payer paying for the infrastructure and to greater or lesser degrees for the contributions.

If the Government controlled access and paid for the infrastructure, I guess they’d also control investment, which could use the proposed National Wealth Fund (which nobody mentioned but I would have asked about if I had not been a stale, pale male).

I sense that commercial CDC is not going to happen, that flame flickered with Royal Mail, but despite protestations from Chintan Ghandi that we were about to see a rush of schemes, I saw no employers in the room, only consultants and thinkers (mainly of the actuarial and legal persuasion). In short, I think CDC will be a commercial flop but could well carry the hopes of the un and under-pensioned through a rebirth of public sector pensions.

Whether it becomes a national pension scheme – a funded SERPS – is up to Government. If Corbyn not Starmer was prime minister I wouldn’t bet against it. But I don’t see much mention of CDC in current announcements from DWP and Treasury so whatever path CDC is to take, it will be a slow journey.