I am pleased , when looking for this blog’s comments, to find some brilliant comments by Pensions Oldie and Peter Cameron – Brown and Derek Scott. The older commentators that this blog has, are very special to it. Here is Pensions Oldie speaking out on CDC
Perhaps we should consider a role for unions and trade and professional bodies here.
It appears the logical conduit for employees of multiple employers, particularly small employers and the self employed, to obtain the benefit of CDC. It is also the model followed in may other countries, Australia, Holland and Canada spring to mind.
This would tend towards the non sectionalised TPT model and, although it may seem heretical in this respect, can we think of the Church of England as a trade body!
For the employer – there would be no difference between CDC and DC, except perhaps a commitment to an industry standard contribution rate.
If an employee could insist on a CDC contribution as part of the employment contract terms it would remove the small pots and pension transfer problems overnight.
I quite agree that unions should be a part of the conversation about CDC and they have been advocates for it to date. That said, they have a brief to preserve what is left of DB. My hope is that they will lobby for the distribution of the surpluses that it’s estimated 75% of DB pension schemes have. I hope that surplus will be used to make CDC as good for future pensioners as the DB scheme has been. It need not be a menace to the sponsoring employer.
The unions are having a pensions conference as they do each March and this one will be on March 5th,
I am pleased to have been asked to a meeting of union folk at the end of April to talk with Terry Pullinger on how a Pensions Mutual can be used to offer CDC to all kinds of employers.
I do not think that a large employer should not be prevented from having their own sections but as it costs £77,000 as an authorisation cost to be paid to TPR, I would not expect many employers to have their own section. I think it will be more sensible for employers with experience of pensions to participate in a mutual than take on responsibility for a CDC scheme within their DB schemes – but that is a good conversation to have. I am happy to see CDC delivered whatever the way.
TPT have their own way forward and I wish it well. It is vital for CDC that there are several options open to employers offering different ways to participate.
I do not disagree with your suggestion that the unions in the interest of their members should be first trying to preserve as much of the DB universe as possible. However this depends on the individual employer’s willingness to continue benefit accrual or at worst run on, requiring individual negotiations by the union.
The Stagecoach Trustees have taken this forward in a way that should not be unexpected, If the pension scheme can provide enhanced benefits by switching employers this is clearly in the interest of the employees and union members. But why should that be restricted to a run on situation? Surely if employees are being provided with an inferior pension promise (such as employer only providing minimum auto-enrolment DC contributions) surely the employees should be free to look for an alternative employer, just as if they do not like any of the other employment terms.
While it may seem unrealistic to expect unions to threaten mass resignations for re-employment by a more amenable employer, they could reasonably suggest that if the employer was unable to provide improved benefits through DB then by participating in an industry wide UMES CDC scheme with the same terms as its competitors this risk would be diminished. This might have particular traction in a M&A situation.
A “mutual” UMES CDC scheme where there is no loss of funding to a provider’s profit would appear to be likely to provide the most attractive option. That would then leave the administration and regulatory costs as the most significant (controllable?) risk to an investment policy designed to meet the long term cash flow requirements of the Scheme.
In my limited experience (but I did sit alongside excellent MNTs in railways like the late Bob Crow and in coal like the late Joe Wills and George Bolton) UK trade unions generally conceded DB pensions in favour of DC schemes due to perceived unsustainable employer costs and exaggerated financial risks to employers, dictated by actuarial myopia, along with regulatory pressures from
a similar mindset.
Faced with increasing pension “deficits” through the Noughties and then the LDI crisis, the threats of employer insolvencies, unions often accepted DC schemes to secure any pension provision at all, rather than losing them entirely.
Key reasons for this seem to me to include: “Unsustainable” costs and “risks” for DB schemes which often required contributions, on flawed actuarial advice, exceeding 20% of pensionable pay, while regulatory capture and creep left employers bearing all investment and longevity risks.
Many employers, with good reason given the poor quality of the actuarial advice on offer, sought to cap liabilities, leading to the closure of DB schemes, first to new, then to all existing, members.
Increased regulatory requirements and their insistence on funding “stability” forced a move away from guaranteed income promises imposed by misguided legislation and regulation.
In negotiations, trade unions often prioritised saving the employers from insolvency over maintaining any DB structure, choosing to agree reluctantly to the shift to DC for younger and future members as a compromise.
A limited, and sorry, experience for me.
You are talking my language Pensions Oldie