Some time ago we came to the conclusion that employers no longer had the same ownership of their pension funds. Ownership has passed to insurers who bought out what they once thought their pension funds, it has passed to the providers of savings plans known as personal pensions and DC master trusts.

As  the agreed position was that “pensions” was a problem for finance rather than a tool for human resources, the outsourcing of management of the pension fund advanced. Investment was outsourced to fiduciary management, administration to third party administrators and as DC was adopted, the master trust and personal pension providers took over the communication of pensions to staff.

This can and should change. We need to a position where employers have ownership of the pension funds they help create. There will not be many pension funds like Royal Mail’s collective DC fund where the fund is the unique to one employer but employers can and will find ways to own ownership of multi-employer funds..

Most CDC funds will have a proprietor independent of the employer who manages the CDC scheme for more than one employer. A CDC fund will sometimes be managed on a shared basis (where the employers have much in common and want to share the section of the fund), sometimes an employer will have their own section to meet their own particular needs. We expect that large employers will want to take some ownership of a CDC pension fund through exercise of governance, investment expertise but most of all through exercise of reward to staff. CDC is a way of paying staff a deferred pension not a pot of money.

CDC predated Defined benefit and the DC workplace pension!

Here is the difference between CDC and what employers gave up on – a defined benefit scheme. CDC is a defined liability scheme for employers, if you read the history of superannuation , you can find examples of employers paying a fixed percentage of a worker’s salary into a superannuation fund which would pay the pension that the fund could afford. Pilkington (the glass makers) set up such a scheme after the first world war and it remained collective and DC from 1918. Lately, Pilkington has closed its DB plan but since 1918 it has been paying pensions to staff as part of pay.

This may seem distant stuff, the CDC fund is now 45 years closed , replaced by a career average scheme which pays the rights today. But to suppose that an employer funded pension plan in the private sector cannot last a century is to ignore what Pilkington has achieved.

For Pilkington, CDC preceded DB and I hope that it will return to CDC going forward. I do believe CDC is sustainable for as long again as Pilkington’s Superannuation Scheme

The mutuality of retirement

Running a pension fund for staff is nothing new and its purpose remains what it was when employers set up pension funds which could pay pensions which staff could retire on.

Not only did companies enter into pension promises with staff but they joined with other employers to establish a national association of pension funds which could set standards and negotiate deals with external bodies including Government’s tax office and those offering social security though the various state pensions.

The mutuality between employers and the state has been lost, This is because employers are now confined to working out the endgame for the DB scheme and the contributions they pay to a third party for a DC savings plan. The responsibility for the employer managing the fund that allows its staff to retire has been outsourced.

But this need not be the case. Royal Mail are unique so far in entering into a contract with its staff, in conjunction with the unions, to pay a proportion of wages in retirement. Here the ownership of the CDC scheme is very real, staff retire on what the scheme offers and that depends on its management, the management is the responsibility of the employer.

This sense of responsibility and ownership of the retirement of staff, based on the time and contribution of staff to the company’s success (recognised in wages) needs to be recovered.

The value to companies of a long record of employment should be matched by a wage retirement to match. There needs to be an earnings relationship but that can be capped as a band , as auto-enrolment allows meaning pensions can be targeted to ensure members of the scheme can be adequately rewarded in their later years.

There can and should be mutuality between employers and their pensioner. We cannot have the hostility that has emerged between the BP pensioners and its retired staff. There needs to be a return to the association of pensioners affiliated to the pension funds.

The ownership of CDC pensions

I see the growth of CDC pensions as starting with the biggest and filtering down through large, medium and small employers as auto-enrolment enrolment worked.

But rather than compliance with the requirement to contribute, CDC should be a voluntary return to the provision of pensions by employers who see a wage in retirement as important to its human resource.

It is hard to see how employers can completely outsource CDC, it seems more likely that employers will buy into CDC schemes as their way of deferring pay efficiently and I expect unions to take the responsibility of ensuring deferred pay returns to collective bargaining on reward.

This is not to write off workplace DC for some employers where workplace pensions are a matter of compliance rather than reward.

I expect Reward and HR departments will recognise that CDC offers a return of pensions as a form of remuneration and employees and their representatives see CDC as an element of pay.