I hope that people will get my point not think me a “Trumper” or “Bellist”. The comment from Bob Compton on yesterday’s blog explains brilliantly what we can do and why what we could have done (CDC) is currently undoable.
Could not agree more with your comments Henry. Derek is also correct with his view of CDC. John is also correct in asking “what is the problem?” as to why CDC has not taken off. Well there is a problem. It is one of regulation and lack of incentives. Whilst many will not like Trump, he is about structural reform and sweeping away barriers and has started on day one with a clearly thought out action plan to deliver on his many objectives.
We have an opportunity right now to develop and implement structural reforms that will deliver “pensions” to those that want one. It just requires clarity of vision and a plan to implement. Easier said than done however.
It is critical for a new idea to get grip and take over, that there are incentives to do it. We cannot do CDC right now as there is no way to make money out of it and plenty of ways to lose money setting up and managing such plans.
To make money you need to have a business model that is sustainable and appealing to all parts. Today CDC does not have that appeal, certainly not to enough people to make it happen. Meanwhile a commercial master trust breaches the £30 billion notch in its belt , there are non commercial schemes that are bigger and commercial schemes that aspire to compete for funds under management. This is of course how Australian Supers compete. We do not have a measure of the pensions to be paid in future as no one has worked out how to make money out of that. There is no pension emerging out of these huge master trusts, only options.
CDC does not sit happily alongside master trusts, those who run master trusts see CDC as uncommercial and have no inclination to embrace it. The idea that a DB scheme might set up shop and offer an alternative to annuities, drawdown, cash-out and even CDC has yet to be taken seriously.
My own studies and work with others suggests that a DB model could be created that is both helpful for those in retirement (providing pensions) and commercially attractive to those sponsoring it. I am not talking about sponsorship by employers but by those with the capital to make such pensions sustainable.
Capital is needed to make collective pensions work and to date we have seen no capital providers showing interest in CDC. They are warned off by CDC regulation which seems written to protect those who have written the laws and those who are regulating CDC schemes. As Robin Ellison says, when regulation is focussed on protecting the regulators, the growth of what is intended is strangled.
Torsten Bell has a job to do and we will see if he can do it. His job is to make regulation work for those wanting or receiving pensions. It is not to prevent things out of fear. My Methodist preacher reminded me earlier in the month of Isiah’s warning, if we are afraid, we will get nothing done. She was talking in my Chapel to immigrants and the poor and those who are ill and she brought us together in a realisation that without fear we will get there. Without worry, I am happy – with worry, I get nothing done! We will not see collective pensions returning (CDC or DB) until we stop being fearful and take a positive attitude to the future.
I am shortly off to Melton Mowbray to the pie factory to listen to John Hamilton. The event is being organised (amongst others) By Bob Compton. I have heard John speak before – and debate. He is a good man and one who gets things done. He helps run a good company and he is trustee of a thriving DB plan, I am looking forward to this afternoon.
If you want to go – details here along with details of this PLSA group
Give Kim Muddimer kim.muddimer@gowlingwlg.com a mail to become a member and Clare Barrett clare.barrett@gowlingwlg.com if you want to come along this pm
