The meeting of minds between Hymans Paul Waters and Lisa Deas with Slaughter’s partner Chris Sharpe was a Teams affair. Slaughter’s offices are a mile from where I watched it, Hymans half that, how I wanted to be in one place with the three of them.
As this blog is also a personal diary, I am including a shot (above) of my screen yesterday morning and making do with three linked in snaps of a lawyer, an actuary and a Hymans partner (who worked with me in 1995 at Gissings!).
I am getting used to asking questions at CDC events. I got in the question –
“how can I swap my DC pot for a CDC pension”
to the Pension Minister – the answer was to wait for a couple more iterations of legislation (or some such waffle). My question yesterday was
“will CDC increase the amount being paid by sponsors for our pensions?”.
Paul Waters, much to my surprise and delight, gave me an answer out of common sense and not out of the legislative and regulatory hymn-book.
Paul said that he did not think it would prompt more contributions. Why not? Because if you have just signed up to giving a pension that should be 60% higher just from being a proper pension, why fund it more than you are the DC plan. Indeed Waters explained that he expected that some employers would be tempted to take contributions down.
While there were two excellent presentations from Deas and Sharpe, there was something spontaneous and sensible about Waters’ response that made it the highlight of the morning.
To my mind, we are now at a tipping point when control of pensions can pass back to employers who have rather lost control during the DC interregnum between DB and what is to come – a pension without guarantees.
When employers – big or small – get wind that they will be providing a pension scheme, then they may start thinking the pension deferred pay and the contributions part of the reward package. That will make the employer contribution rather less important than what it earns the member at retirement (a quotation for which should be available at any point of the journey from joining to taking the pay in retirement).
If we stop thinking of CDC as about defined contributions and start thinking of it as deferred pay then employers will start thinking of their contribution as part of pay. That may well lead to some very interesting discussions with staff, unions and with each other on the remuneration committees or pay teams of employers.
It is a way of thinking that we have not reached yet – generally. But I think that Paul and I (who did start working together in 1995) are as one.
Hymans, if you have a copy of yesterday’s event, please send me it! I will post it on here if you do. That’s because there was some great information on it, information vital in decision making prior to authorisation starting next July.
But best of all, we are starting to get people thinking of CDC as deferred pay not defined contributions! That’s splendid
I totally agree that employers will be incentivised to switch from DC to CDC if they can reduce their contribution commitment. Unless reflecting statutory changes, the employer’s contributions whether they be into DC or CDC are a fixed contractual employment term and cannot be reduced for existing employees without renegotiating employment contracts or possibly illegally by firing and rehiring (ala Baker Hughes https://henrytapper.com/2025/07/09/pic-buys-into-baker-hughes-pensions-while-staff-are-kicked-out-of-work/ ). The benefit of switching to CDC from DC would therefore all accrue to the employee.
The pressure on employers to consider a switch comes from a generalised duty of care towards their employees: Because the employer is the party that choses the pension scheme it is under a fiduciary duty to consider the effect of their choice on the affected employees. Most employers consider they have fulfilled this duty by engaging an employee benefit consultant and following their advice (perhaps even using Pensions Playpen when auto-enrolment was introduced). Whether we will see employee benefit consultants recommending a switch from DC to CDC remains to be seen. I suspect that commercial pressures and existing provider relationships may come into play, even though the fundamental duty rests with the employer.
Of course, if an employer is changing the employment contract it may well look at the projected better outcomes from a CDC pension arrangement and wonder why it could not benefit from switching those contributions into a DB pension promise guaranteed by the employer. The contributions then remain in a fund which appears as an asset on the company’s balance sheet and the investment return potentially reduces the employer’s future contributions under the “balance of cost” arrangement. Provided the deferred remuneration promise meets the minimum auto-enrolment requirements, there is no minimum employer contribution (including a contribution holiday) and the Pensions Scheme Bill even holds out the possibility of a refund of surplus (albeit at the cost of a tax charge and an enhancement over the defined benefit deferred remuneration to their past employees). The employer contributions can therefore reflect the enhanced value for money of a pooled risk collectively invested pension fund without any uncertainty of benefit for the employees. The current publicity about the “gold plated” public sector defined benefit pension promise would surely smooth the renegotiation of employment contract from a DC (or CDC) contribution, especially if the employer maintains the current DC employer contribution rate until reassessed at the first triennial valuation.