It is early on a Sunday morning and I have been working on a response to the DWP’s consultancy questions on Retirement CDC. It’s the third part of a project that started with single employer CDC and looks like being legislative for Royal Mail alone, so advanced is the second legislation going through parliament at the moment.

Collective Drawdown is drawdown . Not collective but retail.

I have delved into the PPI/Kings College/Nuffield Foundation epic and found scope, if Government want to go that far, to offer collective drawdown as a project to extend the collective project to the brink of this Government and beyond but I am dubious that we should be spending a lot of time worrying about the retailisation of collective pensions so we can all choose how we invest.

I have some feedback from two regular contributors. First Alan Chaplin

This is a beautifully made point. The truth is surely that there are groups of people who choose for ethical, religious or other reasons to gang together and invest a way they see fit. I think the many people who followed Warren Buffet or chose the investment style gurus in the UK to manage their assets. At a simple level, putting your money with Terry Smith gives you a different view of your wealth in retirement (though there are obvious downsides if things go wrong.

Which brings me to Pension Oldie

DWP insist that CDC is not retail but collective – but ..

Here is the main thrust of the DWP’s Consultation on Retirement CDC, that’s stage three, where there is the chance for people to being opted into a CDC pension or opt for something else.

I have spoken with the DWP about what retail means to them and it is clear that they favour the individual’s right to opt out of a default fund that behaves collectively.

The great thing about collective drawdown is that drawdown is unitised and you have a pot value which you can cash out if you want to walk away. Retail yes, collective no; this is a dangerous path and it’s one that is being trod by flex and fix.

Nest – pseudo collective with a retail option.

This brings me to Nest which currently gets 97% of “savers/investors”.

Paul Todd (Nest’s COO) says that Nest’s decumulation fund will pay a basic amount that Nest can just about guarantee (not quite mind) and that increases to the basic pension that savers get will go up as Nest can afford to pay it (which is the CDC bit). It will not pool the longevity of all retiring with Nest pensions but instead those who get to 85 will find themselves being paid a pension by an insurance company (a bulk annuity). You might wonder why I am bringing this up in a blog about retailisation of collectives.

The reason is this. While savers are in retirement and getting a pension paid to them by Nest, they will have a transfer value of their rights to the fund they are in. How this works has not been explained but it means that people can walk away from Nest and have their savings back at any time till you get to 85, after which that option falls away and you are stuck with an annuitized retirement income.

Now this is how Nest thinks it can be both collective (let’s face it with 97% in its default accumulation fund it practically is) and retail – because the 3% who choose their own “out” can do so (the top fund for performance in the options is the Sharia fund). I am sure that PPI/Kings/Nuffield can point to the fact that smart people can do better by opting out of the default fund and into something they can see is a better bet.

I suspect that the DWP sees giving people who are in collective pensions of the CDC type (retirement or whole of life) will. according to some scheme rules, know they can pull out of the CDC pension they are in and get a lump sum calculated in some way that is actuarially fair to everyone. This will enable them to do what Nest has decided to do, which is to cater for the 3% of people who want to be different.

This “retail” opt out option which I have heard the DWP croon over as “the best”, is of course a potential problem. Because it means that anyone who thinks they are about to die will be wanting their money and some will die before the request is enacted. Some will find they were in a non-Sharia fund when there was a decumulation fund they could have opted into they did not think Nest or the CDC properly promoted. In short, as soon as we allow the opt-out retail option into CDC in payment, we allow lawyers and advisers into the playground and then the journalists arguing that people could have done better and that the PPI and Kings and Nuffield warned us in November 2025 that CDC would not be optimal for everyone.

I know Paul Todd is doing the best thing and that the people in the DWP are doing the right thing by allowing Nest not to be CDC but flex and fix and I know that a release valve as planned to allow individuals to opt out at any time till 85 makes sense but I wonder that CDC goes that way and does not follow the way that pensions work when “defined”. You do not get a retail option to get out of the State Pension once you’ve started drawing it and you don’t get a CETV from an occupational DB plan (funded or unfunded) once it’s in payment.

A retail CDC is a potential disaster for the project – opt-out’s in retirement could be fatal

Retailisation of collective pensions is a way that is fraught and Nest not going CDC is a trouble to me, even if they want to justify it as “CDC-like”. We do need the discipline of collective pensions as Alan and Pension Oldie say. The alternative will be disputes, administrative cock-ups and a massive actuarial problem called opt-out in pension.

We want things simple and we wish that the 84 pages of the PPI/Nuffield and Kings College paper, is put in the drawer marked “retail” which is what Retirement CDC is not.