Targeted benefits from CDC

The seminar run by Pension PlayPen and featuring Derek Benstead attracted a record audience for a Tuesday morning , compromising veterans to this event and several new entrants. Numbers were well up on Derek’s previous conversation with us in July 2023.

Benstead has given us four rules for CDC

1. There should be no priorities for some people over others, everyone gets the same improvement in rights as time goes on. People do not have unit holdings and need not worry about a balance each year, they should think in terms of the pension they have built up instead
2. Best estimates of what is available to distribute must be made available each year. Nothing need be withheld, 100% made available without prudence.
3. No smoothing needs occur, the value of the contribution must buy a future benefit whose value will be paid as a pension over time, the value of payment is likely to go up and occasionally down but reflect the one year out of many that the payment is made.
4. All the distributions of pension must be transparent and must be public so people can see how the pension changes from year to year

There is a fifth rule , laid down by the DWP that where a scheme is closing , money is withheld to make sure that the scheme is properly administered without new money coming in and eventually wound up with due payments transferred for individuals.

The video is perhaps the most sensible explanation of how CDC works. It sets out to meet many questions but sadly cannot all of them

1. How does the CDC approach differ from with-profits
2. How popular is CDC likely to be in the first instance with employers

We can now be clear that CDC can be delivered as Royal Mail’s on a career average DB like basis, on an employer tailored basis or on a more general approach where pension is bought at a price determined for the age of the average person (most likely for multi-employer schemes).

It would seem to me that the third of these approaches is in line with the revised version being adopted by the Dutch from 2027 and much promoted by our Pension Minister.

There are more questions on our list to ask Derek and these below will have to wait.

1. What will be Employers role & risks?
2. What will be the Trustees’ role?
3. TPR’s Role?
4. Investment strategy for Accumulation & Decumulation?
5. What could go wrong?
6. Member understanding and options?
7. At Retirement options?
8. Transfers in and out?
9. Payments on death before & after retirement?

Answers to these queries have been answered in part by ad hoc questions, which you can listen to in the video.

there are several more to be revisited at a later date and we will publish details of a second session with Derek when he can spare more time.

In the meantime we thank Derek and those who have asked such probing questions as we have had on this occasion.