In the comments that follows , there is some useful follow up, I suspect that Tony understands enough of CDC to be worried. UK CDC (unlike the Dutch) has no pot for each member so he’s right to point out that it’s 25% of “what”, we are back to the days of actuarial commination and that isn’t as easy as DC, We don’t know what a cash equivalent transfer value will be under CDC – again a potential for actuaries, trustees and proprietor to gang up on members. There’s going to have to be a lot of care about value for money both within and without schemes . Advisers should be whistle-blowing on bad practice.
Here is Tony Mudd’s comment on CDC, I am very pleased that this kind of comment is coming up , it helps me think about what matters to ordinary people and how value for money is delivered as they see “fair”.
For a lot of advisers there is a worry that not just will people get financially injured but that the reputation of financial services could get damaged.
Over 40 years ago, when I started advising people, we had SERPS and if you were employed you were in unless you were contracted out, Over time more contracted out than stayed in and eventually SERPS (S2P at the end) could be closed down. Now only a few older people feel SERPS in their old age pensions.
Actually SERPS was not bad but it was never understood and consequently it was easy to undermined with COMPS and APPIs and today we have moved to an alternative – the workplace pension that pays a pot but not a pension, We have found something which generally pleases people but it doesn’t do what it says it does – pay a pension.
We are moving towards SERPS again – CDC and “flex and fix” will provide regular income and probably “real” income that grows with inflation (like SERPS). But I suspect that many people will want level pensions (they show they choose that when buying annuities).
So I do see opt-outs of CDC and often for good reasons, often because they are being advised and often it will work well for them. But my final point is this, the numbers of people who pay for advice (time and money) is a minority and the numbers who follow defaults in accumulation is high (over 90% in many schemes). It is important we find a scheme that works well for most people and I suspect that CDC (both UMES and Retirement) will be more good for most than bad for a few.