Rachel Harris speaks for Schroders and explains this strange CDC thing to readers.
Firms which may have a more paternalistic or “avuncular” approach to its retirement scheme members may be more likely to take up the adoption of collective defined contribution, according to Rachel Harris, head of UK institutional at Schroders.
“Paternalistic and avuncular” are not words that fit well with City folk, they could be replaced by dozy and uninvestable. Living in the City and passing by the hallowed doors of Schroders , I would say that this perception of CDC is fairly typical of asset and fund managers.
“CDC will philosophically align quite well with what some companies are trying to do. This is namely those companies that have a more paternalistic approach, more avuncular approach, as well as potentially those companies which have smaller pots. Royal Mail would be a good example of this. However I would not expect, for example, financial services companies to go for something like CDC”.
No, of course not, the City and those who aspire to the City value set are not going to get behind anything that might also be taken up by employers whose staff have DC pots that have been rather underfunded. They typically are underfunded because staff have been lowly paid (whether now or at retirement), everyone’s lowly paid compared with City folk.
Those who are as bright as the senior executives I meet who run companies outside financial services may be quite pleased that City aspirants are not joining into collective pensions. The average lifespan of a white collar city worker is likely to be way above bus workers, shopworkers, carers, steelworkers – I could go on. Why should they want to be in a collective pension scheme dominated by high-flying , long-living City folk? They’d bring down the pensions payable to the shorter living employees they are being “paternalistic and avuncular” to.
Except of course they aren’t being anything like that. They are competing in global markets and need to take what chances they can. If you are unionised and determine reward as what’s paid now and what’s paid at retirement, then DC is not registering as good news in your negotiations. As far as members and their representatives are concerned, DC saving is not paying anything at retirement by way of a retirement wage. If it is to be viewed as an income on the pension dashboard it will be framed as a level annuity, hardly to be the kind of wage the state pension offers- or for that matter what DB pensions are still being paid to pensioners and deferred pensioners.
For such employers, CDC is not just good news for their staff but it’s good news for the Reward team who can at last consider counting the pension contribution as part of total pay but get approval from unions and from employees who get the message from local union officers.
This is of course is below the pay-grade of those in financial services who will miss out on the efficiencies of collective pensions so that staff can manage their own financial affairs. It is often assumed that financial services staff know how to tackle the nastiest , hardest problem in finance, but my experience, living with and being one, is we don’t!
So , Rachel Harris, perhaps you can keep your patronising view of those who want to introduce collective pensions to yourself. You should talk to your staff and see what they feel about CDC.