I woke on a Saturday morning to this comment from someone who works at the Bank of England. It was in response to my congratulatory blog that Mercer finally have a lead consultant to promote CDC.
You can read the comment on linked in here
Gerard works for the PRA, he was educated in South Africa but been in the UK most of his life , an illustrious career that has lead him to the PRA where he now is a technical specialist in pensions and life insurance. I have reached out to him to be linked in and understand his and by extension the PRA’s scepticism.
Let me explain the PRA to readers who do not move in its circles. It regulates the insurance companies and is part of our Bank of England. So if Gerard is questioning the validity of the DWP’s claim then there is a fault in Government between those promoting DWP and those negative about its claims. The Minister who introduced the UMES CDC which makes it a workplace pension that any employer can use is Torsten Bell, Torsten is a Minister in the DWP but also the Treasury. We would hope that the Treasury and Bank of England are on talking terms! Why am I being asked for an explanation of a Government claim. To be clear, the claims were made by the DWP on 22nd October 2025. You can read the Government’s publication here.
I am happy that we have a Bank of England and PRA that pays its staff a defined benefit pension scheme and recognise that backing up BOE’s staff’s promised pension with investment in Government Gilts for the main part in very defensive funds. This is from the latest Report of the Bank of England’s Pension Fund
Super security comes at a price. This fund has achieved growth of less than 4%
The scheme is non-contributory meaning that the tax-payer is finding the entire cost of the scheme
The scheme actually lost money in the last year I could find. I don’t suppose that anyone from the DWP has posted on Linked in scepticism that this scheme is offering its sponsor (us) Value for Money,
My answer to Gerard and the PRA
I do not like paying a lot of tax but I am prepared to accept that £155m paid into the BOE pension scheme is a small drop in its overall costs and indeed the value that BOE brings.
But it is not setting an example that can be followed elsewhere. In the private sector we have seen Defined Benefit pension schemes closing down for contribution requests much lower than the 55% the BOE paid into the scheme it sponsors (year in, year out as normal contributions).
But if a lucky person in a 55% non-contributory DB scheme is sceptical of CDC schemes delivering up to 60% more than the pension that will be shown on SMPIs and the ERIs of pension dashboards arising from DC pots, then he is out of touch.
We in the real world where employers struggle to pay 8% of band earnings of which 5% is paid gross by employees , are struggling to pay any more into pensions. That CDC can – mainly through improved investment (70% of the 60% according to LCP) – pay better pensions you should be very happy. It means that Britain will get more prosperous and the BOE will continue to flourish.
As it is, I am working on no salary as are all those working at Pensions Mutual so that we can get a CDC scheme to market in early 2027. I think we have the right to trumpet the potential gain promised by the DPW.
This from early in their 2022 statement
That document finishes quoting a firm spent much of his career at (Willis Towers Watson)
The Department’s Impact Assessment published 18/09/2025 is available here
The Bank of England’s PRA may be above the rest of Government, they are certainly getting pensions that say they are.
The most important criticism of the BoE pension fund is that it is not aligned with the government’s growth agenda as can be clearly seen from its asset allocation. Indeed that allocation is sure to deliver lack-lustre returns for the scheme (really not much different from deposit rates) and do little or nothing in terms of promoting economic growth.
I am supportive of your CDC objectives but it would be helpful to take a step back.
In any sales pitch where the long term relationship with the client
Is desirable it is best to under promise and over deliver. Maybe utilising some sacrifice in return to avoid the risk of a reduced payout. You only need to offer more than a successful trustee producing 12%
To push the 60% narrative congers up images of a South Wales spiv armed with fish and chips flogging dangerous funds.
Your pitch is to the trustees and the employer not through IFA regulated channels ( based on your replies in the blog )
Why would the benefit of this income advantage be only for the member? Surely the employer would wish to use it to reduce the contributions.
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derekscott1953 says:
April 18, 2026 at 7.32
You quote pension asset values from BofE’s 2024 financial statements, with 2023 comparatives, Henry, but the year before that shows the folly of allocating two-thirds of the assets to LDI.
Assets at end February 2022 were £5.093 billion, reduced to £3.364 billion a year later.
But, as you say, it’s we taxpayers who underwrite this.
No doubt Mr Farmar will point to the fall in the accrual contribution rate from 52.2% (!) after the 2020 triennial valuation to 26.2% after the 2023 triennial.
The smoke and mirrors of discount rates based on rising gilt yields.
The contribution rate is shown in the 2025 scheme numbers as 55%. You may have more current numbers
Not according to the 2025 financial statements, Henry.
During 2024/25 a revised Schedule of Contributions was agreed that introduced a further adjustment to
contributions; an additional reduction of up to £32m over 2025 and 2026. The contribution for 2025 was nil.
BofE, however, also provides Medical benefits.
Some staff are entitled to receive healthcare benefits in retirement.
Separate provision is made for these in the Bank’s accounts as these cannot be paid out of the Pension Fund. The liability (using a 5% discount rate, which arguably understates the ultimate cost) was £69m at end February 2025.
BofE was said to be in talks to cut its generous gold-plated pensions for staff, but that was nearly two years ago. There does not appear to be any update on the outcome of those talks.
Andrew Bailey, the Bank’s governor, was understood to be leading a review with union Unite designed to make Threadneedle Street’s pension scheme more “sustainable”.
The Bank’s defined benefit scheme (which includes a more recent, career-average section) operates three different accrual rates for staff, 1/50, 1/65 or 1/95 of salaries depending on the terms of their contract and when they joined the scheme.
Just shows the folly of LDI except in super mature closed DB schemes, which is the only situation where the realisable (market) value of the assets has significance. If the Bank of England pension scheme had not adopted LDI, it would now have a reasonable prospect of a contribution holiday.
I wonder where the Bank of England gets its cash to pay these inflated pension contributions. Is it from the income from its quantitative easing holdings of UK Gilts, or its operations as the lender of last resort, or effectively taxation? In any event is it acting as brake on UK Growth let alone not investing in the UK productive economy.
Interesting to compare the BoE pension scheme to the Parliamentary Pension Scheme where the current contribution rate is 10.5% and there is a significant (largely overseas) equity component giving a scheme return of 10.1% in the year to 31st March 2024 (I cannot immediately find the report to 31st Match 2025).