I have to admit to have paid no interest in Gallagher lately. I had assumed they were not  interested in CDC until it produced a document this month on their findings with their clients and those who advise them. Gallagher is one of Britain’s largest insurance brokers and has a number of employee benefit consultants under its wing since it went on a European development surge!

I will have to put my hands up and admit to being wrong. The report was good but the seminar they ran yesterday was better, as good as anything on CDC’s impact on large UK employers we’ve seen.

Here’s the line up

You can watch the 45 minute event from this link.

There are a few points that I will pick up. Firstly there is an uncontested statement that retirement CDC will have the benefit of a DC scheme behind it, implying that it can fall back on the funds used to provide DC members with pots. There is no way that a retirement CDC pension can be paid from people’s pots or use the funds they are invested in. CDC pensions have to be paid from a collective fund distinct from the pots being used to pay defaults or simply as capital waiting to be drawn down. I think the establishment of a Retirement CDC will take a lot of thinking for master trusts. We have yet to see the result of the  DWP’s Retirement CDC consultation on the establishment of a fund.

Secondly there has been a lot of talk since the Gallagher report of large employers wanting a single employer scheme. Our experience when talking with large employers is that they aren’t aware that they can have their cake and eat it. The CDC multi-employer scheme can operate a general scheme for employers who are prepared to share and also sections of the larger scheme unique to a single employer or a group of employers.

Muntazir (Monty) Hadadi knows this very well as he is Head of Pensions of First Bus, itself a large employer of bus workers but together with other companies a huge section of workers. There are , according to a reason Government report, over 90,000 employees working “on the buses“.

Why wouldn’t they want to be in a multi-employer scheme? Workers move from employer to employer as franchises change hands. But employers in this sector do not, from my conversations, want to run the scheme themselves. Outsourcing the management of the scheme (administration, investment and governance) to one Proprietor and one Scheme does not mean that 90,000 workers need not lose the perception or the benefit of  having their own arrangement. Their sector could be discreet, have its own name and management, if large enough, a section can pool longevity and even investment between members in the sector .

“Sectorisation” will be important for large schemes and groups of schemes that do not have the unique character of Royal Mail.

My third push back is the assertion by employers should wait and see the proven results from CDC multi-employer providers. This is where the work of TPR in authorising schemes is most important. It is where advisers can be most important and where the influence of the unions to create a “burning platform” to make employers move from “interested” to active. This is where the session was so interactive with both Monty and Ali saying much the same as Gallagher.

Gallagher’s report and seminar are dynamic ;  large employers are asking  whether to tackle pensions again. The discussions are focussing on  what it would mean for the organisation if DC was exchanged for CDC.

That said , the results of Gallagher’s survey is astounding as such a large number of  employers are willing to be early movers

What is mean’t by “early adopter” is what Government and pension industry should be thinking about. Monty says around a third of the way in that there is a “buzz” about CDC pensions and that is particularly the case with larger schemes. If that proves to be the way things turn out then we will see something like the start of staging of workplace pension schemes in 2012-13 where large employers went into untried schemes on the basis of due diligence and reputation of those involved and the services behind them.

Monty brings the union’s influence to the conversation and suggests that what is needed is education of employers. I suspect he is talking about the C-Suite of large firms who need to be educated by the pension experts within the company who have bought into the value of CDC to members. He points out that what were once large pension departments in large groups are now down to a hard core of these experts so voices must be loud!

Here are where Gallagher heard that CDC could benefit employers

Monty points out that the long-term advantage of a CDC comes from investment returns and this will be down to CDC schemes getting it right. Again the similarities to the debates by large employers with advisers were back at AE outset , who would be winning 15 years later. We are now 15 years later and it is only now that we are testing DC accumulation VFM. 

Whereas in 2012 when employer last had to take decisions about providing for employee’s future by buying into a workplace pension scheme, so in 2027, employers will have to start thinking whether to keep with that choice or move on to CDC.

The Gallagher seminar was the first time that I have heard this decision properly discussed by advisers , employer and a trustee (Askar Ali). It comes off the excellent CDC 2026 report.

The discussion of the various types of CDC that are available now (single and whole of life multi-employer) was excellent as was the discussion of Retirement CDC which was balanced.

Monty had the final words pointing to the advantage to his staff of having more security and an easier path into and through retirement.  He is becoming a spokesman for CDC and we can all thank him for that.

I haven’t met with the Gallagher team yet but will use August to find my way to their offices! This was the best CDC seminar we’ve had so far.