CDC is likened to a fruit machine

The Telegraph has published an article about CDC pensions that I publish here. This blog contains elements of the article.  

The Telegraph’s Rob White sees Rachel Reeves looking to tear up the rules that safeguard pensioners in DB schemes and replace “healthy” DB schemes with CDC.

The Telegraph triumphs that Defined Benefit schemes are in rude health

So the Pension Protection Fund’s chart should have us rushing back to join these schemes? Sadly, unless you are a university lecturer, an MP associated with Local Government you can’t, there is no way to join these rudely healthy schemes whose guarantees have sucked the growth out of the companies that have sponsored them to meet rules devised by past Governments to protect the lucky few at the expense of most savers who have nothing but savings plans (DC to you and me).

Our Pension Minister Torsten Bell and his boss Rachel Reeves – the Chancellor, are seen as villains for raiding pensions to pay Treasury bills.

Who these mysterious “experts ” are and what allowing the launch of CDC to smaller companies from 2026 has to do with Maxwell is not clear. A comparison is made with defined contribution pensions though

It is of course true that markets may fall, people will misunderstand and they might die before getting their pot back as income. The same can be said of the State Pension which might underpay relative to a well invested DC plan, people may find the idea of a large bank account more comfortable than an income for life and yes, people die shortly after starting taking a pension.

For people who believe a large bank account (and tax bill) beats a pension, the option of pension freedom exists and it is totally wrong to suggest that Reeves is putting pensions at risk. CDC is not replacing DB pensions , it is offering private pensions to people who have nothing but pots and doing so with investment rather than the lock-down of annuities.

Rob White and the Telegraph call in Tom Selby of AJ Bell to explain to people that they still have annuities and Tom is of course right, if annuities worked for ordinary people we would scrap pensions, infact that is what many people want to do with DB schemes, so we get insured annuities and not invested pensions. Ask the “experts” who is making money from annuities and you will discover the answer “the insurers”.

Sadly Andy O’ Regan , CIO of TLT who is pioneering the development of CDC for smaller companies is quoted as is Pension Minister Torsten Bell as if complicit in Reeves’ conspiracy against retirees,

Sadly, Paul Waters of Hymans Robertson is quoted as explaining how CDC failed first time around in the Netherlands. I know Paul to be a fan of CDC using a system that doesn’t replicate DB with pension paid against earnings (the Royal Mail system).  He and I and everyone wanting a popular pension system wants what the Dutch are moving to. Paul actually says so in the article but he is placed in such a horror show of mis-quotes that he sounds like he is supporting the Telegraph’s story of a Government raiding our pensions

The plans also come at a time of major change in the Netherlands, where CDCs are the most common pension scheme.

Paul Waters, of pensions advisers Hymans Robertson, said the country was now moving away from CDC and into defined contribution schemes.

He said: “What I believe happened is first of all they didn’t communicate the risk of cuts particularly well. Secondly, the way it was designed is that when cuts were made, they weren’t made universally. Older people receiving pensions didn’t suffer cuts, but younger people still paying in effectively had pension cuts, so intergenerational unfairness undermined the whole thing.

“The design which the UK government has put in place has learnt lessons from other countries with CDC. The way regulations have been written is that should there need to be a cut, it has to be applied equally across everyone.

“The cautionary tale is around communication. We definitely think you can get higher pensions, but there will be times when pensions go down. You have to communicate this risk clearly and make sure that each person gets the right level of benefit for their saving.”

Presumably, Paul , Torsten and Andy are quoted at the bottom of the Telegraph article to offer some balance but by now the reader will have got the message that CDC is a raid on the security Telegraph readers get from defined benefit, annuities and as a “safer investment” defined contribution.

All is summed up with the image of Reeves playing “fruit-machine” with our pensions. This is disgraceful journalism and demonstrates how feeble the arguments for a failing system of retirement savings really are.

The Telegraph’s headline for its readers

For most people (other than a lucky few) retirement is not protected by any more than the state pension, we need to build back a pension system after private DB has been strangled and since we have been put in workplace pensions that pay no pension.

The Telegraph has sunk to a new low and needs to take a long look at the standard of its pension journalism.