Consultants discover their clients looking at CDC to pay retirement wages to staff

This blog’s a conflagration of what’s discovered by LCP, Gallagher and the Pension PlayPen.

The responsibility of paying a pension to a member of staff is something that many employers still appear to  consider their job. This despite the talk this century of flexibility and “wealth” . This chart from LCP was used to get the attention of  a group of employers and trustees attending an LCP seminar yesterday

 

This interest is evidenced by answers to this question.

There is clearly a strong  interest in paying pensions rather than pots and in this case , a better pension than be got from an annuity. Let’s not get too hung up whether a deferred pension is paid from a pot (R-CDC) or accrued as members go along, what matters is that people get decent inflation linked deferred pay from their work.

What this group surprisingly wanted was “noise” from those designing commercial products – do they read this blog? The noise was very much in evidence earlier yesterday when a union made it clear what mattered to their members was much the same.

 

To gauge where the market stands, Gallagher surveyed
250 employers, trustees and pensions professionals.

The headline is a clear appetite tempered by caution: 76% are
assessing, exploring or expect to explore CDC within three
years. Around half (52%) of respondents say they would
be comfortable being an early adopter.

There is currently  for providers  that the second wave predominates.

The gap between interest and commitment is the defining
feature of the market today. Closing it depends on three
things respondents point to consistently: clearer regulatory
guidance (39%), proven results from early adopters (38%)
and positive stakeholder feedback (37%)

This is of course hardly surprising. We are still 10 days away from authorisation beginning. If everyone is watching and no employer using a working CDC, then we won’t get anybody going. But you can’t accuse employers of not committing to a CDC Proprietor and Scheme when they are yet to embark on a 6 month authorisation process.

Gallagher finds that employers are more keen that staff accrue pensions (not pots). They are yet to firm up on how this is done but this is minutiae compared with the mammoth change they are finding in attitude. For 76% of clients to have decided to explore CDC must be quite a shock to a consultancy.

Preferences are also taking shape. Unsurprisingly, based
on our conversations across the industry, multi-employer
CDC is the most popular option for further consideration
(53%). What is somewhat surprising, however, is that
single-employer remains relatively popular too, with a third
of respondents (34%) saying they would be most likely to
consider a single-employer arrangement.

Have any employers looked at what it took Royal Mail to set up on its own? If any employer wants to understand the burden they’d take on by offering their own CDC, please have a word with me – it isn’t cheap, it isn’t easy and it can be better achieved by buying a section of a multi-employer scheme if a single employer arrangement is needed,

Multi-employer schemes have the advantage of spreading fixed costs over a large group of employees from many companies. It does not involve employers paying to participate. A Royal Mail style solution works for those with over 120,000 employers who stay in one job for most of their lives, but is that what you’ve got?

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It sounds to me that employers are taking the initiative

Luckily for common sense , sole employer CDC is an option is being looked at , but at the same time as a multi-employer option.

Around 86% also said they would find a sector-wide
model attractive, again signalling routes that are scalable
and accessible

Gallagher get the same split between employers interested in CDC as a way of building up a pension (whole of life) and CDC arising from turning pot to pension.

Neil Walsh of Prospect told the tale of running a lunchtime fringe meeting at his conference. He expected a handful of employers to turn up but got well over 100.

To understand where employers are getting information , then listen to the video behind this link for three minutes from 27.12. Employers are learning from unions , from their union reps and from enthusiasts like me , who give the talks on CDC.

Conclusion?

Consultants are finding out that there is latent demand for something different than saving to get wealthy. Employers have a wish to pay staff a retirement wage and to do so at a cost determined and controlled by them.

This is not surprising, pensions are not something that employers understand as pots of wealth, they do not consider pensions are measured by the value of the pot but of the pension that is offered,