This comment is from an “outsider looking in” on this blog. The thought is very personal and explains why some who would have drawn down from a DC pot may prefer to be paid a CDC pension.
I could chose to select my DC investments to match those of a CDC scheme’s asset allocation and if I did that at the same cost, I could enjoy the same benefit. I might even set the allocation for a little more growth and beat the CDC income.
But, and here’s the rub, I don’t know how long I will live.
I might feel under confident about choosing my investments but not want (or afford) professional help. I might well then be more cautious, trying to ensure the funds are there when needed just in case I live an extremely long time, being worried about withdrawals being unluckily timed and balancing that with enjoying life whilst I can. My DC would then likely under perform CDC, whether I chose to try to go it alone or bought the guarantee and annuity provides.
I hope to make it to a ripe old age with my faculties reasonably intact. Genetics, family history, demographic factors, and my efforts to control my diet and fitness give me some cause for optimism, but the number 20 bus might wipe that aspiration out tomorrow. If you want to make God laugh tell her your plans.
Someone wealthier might be more concerned about preserving wealth for the next generation, be happy to pay the fees of an adviser or take great interest in the investments, and best meet their goals with DC. Someone poorer would perhaps be more concerned about having absolute guarantees needing to know that their basic needs are definitely covered. Like many people, I’m in the middle.
I’d like to leave something to my kids, and I have some other resources and secure income already, so CDC could potentially give me the opportunity to use some of my pension funds to ensure I would never run out of money whilst having a better income than DC would provide.
It is said that CDC gives 60% ( or is it 24% ) more
Elsewhere it is said that the income could decline.
With limited evidence what has been the experience in the Post Office CDC scheme?
John,
The Royal Mail (not Post Office) scheme delivered a 6.4% pension increase for members in its initial valuation period ending March 2025 (outperforming CPI inflation by 2.6 percentage points).
Members separately build up a retirement lump sum.
We wait to see what the second valuation period ending 31st March 2026 will produce.
As with any new CDC or DB scheme, the cash flow positive early years are likely to produce stronger results than those of a more mature scheme, although the valuation assumptions should try to take this into account. In the Royal Mail scheme they are likely to be building a contingency reserve to protect future increases in times of stress which will not be available to UMES CDC schemes operating under the new Code..
Interpreting across the investment performance of a not dissimilar DB Scheme, with a growth asset investment bias, if an UMES CDC Scheme had been in existence at 31st March 2023, the last three years increases would have been:
31st March 2024 – 13.8%
31st March 2025 – 3.9%
31st March 2026 – 13.2%
CPI Inflation over that three year period was 9.37%
PensionsOldie Thank you for correcting me.
There are gaps in the availability of data, thank you for supplying some. I am comparing Jnt life 100% survivor benefit no guarantee no proportion paid monthly in arrears increasing with RPI in two forms 1) from a SIPP and 2) from personal as a PLA.