The Government has not made a major statement on policy since Edinburgh (PLSA) in early March. Yesterday he delivered his intentions to those at the LCP Conference and delivered the import of Torsten Bell in a statement
In bold are my comments
- Wide reaching reforms to make innovative “collective” pension funds more commonplace will reduce risk and volatility for savers. The comparison here is freedom from pensions , not annuities
- Collective Defined Contribution (CDC) schemes pool investment and longevity risks, unlocking productive investment potential as well as supporting more predictable returns for savers at no extra cost for employers. The CDC scheme is portrayed as an employee benefit relative to a DB or DC plan funded by an employer for employees
- With new regulations to allow for multiple employer CDCs planned for the Autumn, more savers are set to benefit from CDCs as part of the Government’s Plan for Change. The capacity of CDC to deliver better pensions in the immediate future depends on the speed of implementation of legalisation for everyday companies (not the Royal Mail) and for there be incentives for commercial organisations to make money out of CDC.
I am of course very pleased
There are over 200 blogs here going back to 2012 calling for CDC to be used by employers to deliver pensions in a way they can afford , offering good retirement incomes (relative to annuities) with reduced risks that from “drawdown” and “cash-out”.
The reporting of the speech has been given to Pension Age
Well done Sophie Smith for a good account of the Minister’s speech, here are her key take outs.
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Torsten Bell told LCP conference they will move forward with plans to extend CDC to multi-employer schemes
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Sharing the announcement, the Department for Work and Pensions (DWP) suggested that a lack of innovation and reform of the DC savings landscape risks some future pensioners bearing large risks, in terms of the value of their investments and whether their savings will provide an income throughout their retirement.
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The DWP said that, due to their size, CDCs can also be a more efficient vehicle for economic growth
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The Minister also confirmed his desire to deliver decumulation only CDC schemes, which would allow certain savers with DC schemes to access CDCs, offering retirees the chance to buy longer term, pooled retirement products that deliver stability for pensioners.
Making sure CDC (2) does not get stuck in the pipe
There was a statement from the Minister on making it easier for people itching to retire but having no obvious way forward with a pension.
“There is a good case, obviously, for allowing another option on the decumulation menu, through decumulation CDC… that is obviously a bit trickier on the policy side, but that work is now well underway.
The announcement is also intended to provide further clarity to the industry ahead of the upcoming Pensions Investment Review and Pension Schemes Bill.
Bell confirmed to the LCP audience that new regulations (through a Regulation Code) , set to be laid in the Autumn, will allow for multiple employer CDC schemes to be established, so that a range of unconnected employers can pool their employees’ pension pots into a collective fund, boosting returns for savers. The Autumn will see the passing of the Pension Bill to Pension Act.
It is important that tight deadlines ae met so that CDC schemes – both for the whole of life and for spending DC pots (decumulation) are available from 2026 for schemes to adapt to and new schemes to spring up.
Reintegrating pensions into retirement savings
There is very little in Torsten Bell’s speech that will not have been the expectations of progressive pension experts but experts are not the people who have to get excited by what CDC can do.
At one end you have Paul Todd of Nest talking of the 13m people Nest looks after with an average of less than £4000 in their pot, being offered what will look to savers like more Government Pension with increases based on what Nest can afford and not guaranteed to even be paid in future years.
At the other end you have the rich occupational DC schemes where employers may have paid well above the 4+3+1 of band earnings, some of these have average member pots above £60,000 or more. These pots will be humbled when shown on Pension Dashboards next year using SMPI income projections . They will show that most people have not got an expectation from workplace pensions in line with the rhetoric of those arguing for the success of Auto-enrolment.
Torsten Bell made this point yesterday, we need the money in workplace pension schemes to be efficiently converted into pensions so that those who don’t want to DIY using pension freedoms have a way forward.
We should not ignore the impact of greater visibility of what people have (or haven’t) when a dashboard becomes available (October 2026). By then the question of what pensions are likely to be available to people will be much more important. By then we should be ready to tell members of workplace plans with other pots elsewhere, just what private pensions will deliver,