I am confused by this paper from David Fairs. Is it really a  personal submission or will it be read as an LCP report?

You can download this epic idea here . Or you can read LCP’s briefing to those on linked -in below

LCP Partner David Fairs has submitted a proposal to the Pensions Commission for a CDC consolidator or superfund.

His paper explores whether it would be beneficial for transfers to be permitted from Defined Benefit arrangements into a CDC pension arrangement and whether a CDC Superfund would be an enhancement to current end game options.

The paper highlights that some of the advantages of DB to CDC transfer are for employers it removes underfunding risk from the employer and means CDC can be accounted for as a DC arrangement, for members it will mean a substantive increase to members benefits as well as more flexibility on how benefits are received and for Government the nature of the funding approach will mean higher allocation to growth assets and ability to invest assets for longer time horizons.

CDC consolidation could create economies of scale allowing lower per member costs of administration and governance. Larger fund sizes will also allow access to investment opportunities and will create the governance budget to invest in a wider range of assets.

David Fairs, Partner at LCP, commented:

“In some respects, a superfund can act as a bridge between the two options open to trustees: run-on or transferring the scheme to superfund or buying out benefits with an insurance company.

Current legislation in the UK prevents a bulk transfer from a defined benefit pension scheme to a CDC arrangement. I believe that there are potential benefits for employers, members and the Government to looking at CDC as a consolidator or superfund.”

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For the Pension Commission yes but quietly!

Do not think that scars from pension mis-selling have healed, they are still open.

Ten years ago we started to see DB schemes liberating themselves into wealth pots, this reached its peak for BSPS members  in Scunthorpe and Port Talbot but it happened around the country, people exchanging pensions for pots that make little sense to them  today. That’s why the next step after Retirement CDC is a retail product that allows people to exchange unwanted pots (many from DB) for CDC pensions.

But to confuse those implementing UMES and Retirement CDC with those  deciding on an end-game of annuity and  superfund is to glut our appetites – I fear we will become sick of it all

LCP and David have so far cleansed the appetite of those who are trying to get CDC in place and those trying to get DB schemes to run on. Let us digest what we have before bringing another course!

I do believe that  a CDC superfund could and should happen and (like Andy Young has told us) that a CDC superfund could and should be run by the state (as the PPF is).

But please, David and please LCP, can you have this conversation elsewhere, not while a  consultation on CDC is going on.

We already have our CDC roadmap and this is it. Let us get on with doing it. Please don’t risk a car crash on this road (map).

The place for this exploratory (and extraordinary) thinking is not in discussions of how we get CDC done, it is with the Pension Commission (PC2) as we now call it. It is for a private conversation not a public debate, whether this is through a David Fairs  or an LCP paper.

Can such a respected actuary (and friend) please let the two CDC proposals dawn? A new CDC pension superfund is for a private conversation for the moment.