The SPP are the first of the big trade bodies to publish their submission to the Retirement  CDC consultation that started on 22nd October with a pow-wow at Aon , much referenced on this blog. It has gone on for 6 weeks and ends today. We (AgeWage and friends)have done one which I will reference from time to time but I want to give publicity to this as it represents good thinking.

You can download it here

I will not quote from the body of the report, if you are that interested, you will read and decide for yourself. I will quote the introduction and the executive summary which will be enough for most people.

This I have mentioned on this blog before and Julian Barker is sick of being reminded of. The fact remains that either the deadline for default decumulation options (Guided Retirement) gets moved back to meet the CDC “roadmap” or CDC’s road journey must be speeded up.

Whether by accident or not, the Pension Schemes Bill is being read this afternoon in Parliament, it doesn’t say much about the CDC timetable but it is clear that people who get to the end of their retirement saving are going to need more than what’s available now. So far, only Nest , has put its hand up for what it’s going to do. It’s a kind of flex and fix with a bulk annuity at the end (from 85) and increases paid from what a central fund can afford to pay (a bit like CDC but not the CDC that’s being consulted on here).

That’s the SPP’s big political point. What follows is about how CDC at Retirement should work.

There is no fundamental  disagreement with the DWP’s propose approach to Retirement CDC. The Society of Pension Professionals do not want the door opened to the self-employed and others who can’t get their retirement savings into workplace pensions. More difficult will be the savers who are in a workplace pension that doesn’t offer a CDC either as part of the offering or in partnership with a CDC Retirement scheme elsewhere.

I stuck my hand up at the Aon bash in October and put it that such people will most likely include me! The Pensions Minister clearly saw me as awkward (in both senses). The SPP take the same attitude.

The actuarial “discussion” to come.

The big difference between the whole of life version of CDC and the (at) Retirement version is the risk to those transferring in to get a pension straight away versus the whole of life crew who can spread their investment risk over their and other’s “whole life”.

The big new idea from the DWP is “cohorting” which means that savers as they come in are consigned to a cohort which is treated differently from those in the cohort which came before and the one coming after. The idea is that each cohort will have different treatment at outset meaning that everyone will get the same outcome in terms of value for their money.

We had a meeting with the DWP CDC team yesterday to discuss whether data is now accessible enough to actuaries and to the pricing models they can set up, to mean that a contribution can be given unique treatment through dynamic pricing, rather than going through what our boffins think might be a little cumbersome (and actuarial intensive). I suspect that we can integrate pricing into the administrative model so that pricing does the job – but this is going to be a bit of an actuarial pow-wow. It’s clear that the SPP are going with the old-fashioned cohort ism while dynamic pricing (known to actuaries as chain-linking, can do the job for others – including our boffins!).

Differences between schemes

Just how Retirement CDC Schemes will develop will be interesting. So far there has only been TPT putting their hands up to do any kind of commercial CDC and it has so far only said it will do “whole of life multi-employer scheme” – (aka mastertrust or UMES).

I see a lot of different approaches in terms of operation and in terms of investment, I see differences in the use of existing admin systems and support systems and the development of new administration system using AI to answer most of the questions people have.

I see some schemes wanting to operate within a charge cap to protect members from unscrupulous “proprietors” and other schemes wanting to spend on investment strategies that don’t fit within traditional charge cap structures. Go and ask Border to Coast who will run £110bn of LGPS money by April next year. They will explain that to get best value for money , you can’t start with the constraint of a “cap”.

The more you move towards “retail” the more a charge may be needed, the more towards the management of money the way large DB trusts do , the less the need for the cap. I think the jury is out here and there will be a model for the DWP to see developing on this as the whole of life proposals take shape in 2026. I suspect there will be more players than TPT.

And of course there is a lot to compare on “governance”, what the ordinary people will think of as the “classiness” of how a scheme is run! There is no doubt that the DWP and TPR between them are gong to make sure there is no shortage of governance in place, not to forget the oversite from regulation.

Thanks SPP

I don’t suppose that many people will pick up on SPP’s consultation response, but I will, not just as a blogger, but as someone who wants to get to the bottom of some of the questions DWP ask and to get to other people’s answers.

That the SPP have put this response in the open is a sign of the organisation’s maturity and self-confidence and it sets a goal for others to match. I hope that the DWP get a few and a few more get published. Ours may follow in the next few days as we check with the DWP we are on their right page! Isn’t that a good way for a consultation? I think it is.