Here’s my friendly Scottish Accountant and Pension Trustee – Derek Scott, reminding me that for many people, the ideas of salary and pensions as “deferred pay” are old fashioned

I think, since Barber vs GRE in 1990, you’ll find that occupational retirement benefits are already considered “deferred pay”.

“Salary” now seems a rather quaint idea, a fixed, regular payment (typically monthly) independent of hours worked, allegedly offering more stability and salary-related benefits.

It’s not just employers in the “gig economy” who these days prefer short-term contracts and variable pay based on an hourly or daily rate, perhaps allowing for minimum hours and/or an element of overtime pay.

State pension offers a minimum (but inadequate) level of “income” in retirement, while one of the other features of modern-day retirement is that cash requirements may be lumpier and irregular and unpredictable.

This in turn may mean pot decumulation strategies such as flexi-access drawdown (some of which is still tax free) alongside optional insurance products very much still have their place.

This is very modern thinking from someone who could be thought a veteran! I think he’s right for many people which is why the ideas of DB and CDC pension don’t resonate with many people of the kind that Derek describes.

Which is why it is important that employer’s decide whether they want the old style pension (as public sector workers get) , CDC pensions – which mimic old style pensions but deliver as the market lets them or whether employees are encouraged to put money away for a later life that they can finance as they choose.

It’s nearly a year since I went to visit Derek in Fife and realised then that he thinks more deeply than almost anyone I know about what people want in retirement. Derek was Chair of Trustees of bus company Stagecoach and Railpen, the railway workers pension scheme. Here are workforces that I see at work a lot, men and women on busses and trains , driving me to schedules that they can often choose. There is increasing flexibility but I’d still consider they see themselves as salaried and their unions, Unite and RMT certainly value certainty of what they call the “deferred pay” of a pension.

There is a tremendous debate going on within unions on this subject and I hope a similar debate in the HR and Reward teams of employers (with pensions being discussed as a benefit not just a liability).

What seems most important is that we establish what options people are given to opt out of “deferred pay” pension arrangements and to what extent, a flex arrangement is promoted over a CDC. I think it could be argued that CDC is not appropriate for all companies but I think, before it is rejected, it needs to be understood, valued and only rejected if the price of freedom is considered worth paying.

We have seen a move in DB consulting to establish TAS300 as a way for an employer and trustees to consider whether to buy-out a pension with a bulk annuity or explore other options (which Stagecoach did with Aberdeen). There are alternatives such as superfunds for DB pension schemes but so far , little of the variety have been chosen to accommodate DB promises.

We should have a similar way to assess DC in its purest form as pension freedom, its halfway house of flex and fix and its deferred pay option, UMES and Retirement CDC.

This may sound hard, but relative to the choices of DB it is relatively easy to make choices based on an understanding of the behaviour and needs of employees. Even if employees appear to be contractors, most who work over time get rights as workers under auto-enrolment so it’s hard for companies to walk away from decisions that they will need to take.

The phrase “deferred pay” is the right one for DB and CDC while  ” flexible income” is the phrase I’d use of DC. They suit different workforces, what kind of workforce is yours?

If we can banish the minute detail of how flex and fix and CDC might work, then we can have a sensible discussion around retirement income as deferred pay or as flexible income.

Thanks Derrick for helping me to think this through. Thanks to Terry Pullinger for making it simple in my head!

CDC pensions such as that provided by Pensions Mutual, should focus on employers whose employees appreciate deferred pay while workplace master trusts may offer a choice to employers of deferred pay or flexible income.

This seems entirely sensible for unions, employers , consultants and providers as a discussion framework.