This morning, I’ve explained that for some people, the time to flex has gone and people will increasing fix with an annuity, you can read my blog on this here.

But if you are looking forward to retirement (rather than experiencing it) then time is on your side and you can give yourself a retirement increase if you join and stay in a collective pension. We will call CDC a collective pension because it differentiates it from the kind of annuity that we can buy ourselves.

The Government has got a lot of stick for advertising that collective pensions can give you a 60% pay rise when you retire, the number was calculated from the calculations of WTW, Aon , Hymans, LCP and most lately PPI in the last four years since bond rates recovered in late 2022. The recovery in annuity rates has increased since these numbers have been published and 80% may be today a little extravagant but even with the most conservative assumptions for the future, collective pensions improve prospective pensions for workplace savers by at least 30%.

This is because, the longer you have till retirement, the more benefit there is from a combination of the initial conversion rate of your monthly contribution buying future pension and the impact of market movements to increase that pension promise by inflation.

Collective pensions can be invested 100% in growth stocks that are good for the long-term. This is not something that annuities can do, with their guarantees nor is it something that you can afford to do with drawdown, where you have no collectivity to shield you from bad times in the market.

Of course you may choose to opt out of a collective pension that your employer puts you in , but to do so, you need to take responsibility for your retirement finances in a way that most of us don’t want to. You will need either to take the haircut in the collective pension annuity for the guarantee of an annuity or the lack of security from individual drawdown.

We think it is better for most people to do what DB pensions did so well before being choked by having to de-risk to meet guarantees. That is to invest long-term in growth stocks to pay your pensions. It is true that CDC schemes will introduce some matching assets when it becomes fully mature and this protection is priced in at the start to be fair to those coming along behind.

But there is a fundamental claim made by collective pensions and it’s based on the Government’s claims for CDC.

This message is getting through to larger employers who are being courted by unions and by savvy staff who are in a position to take advantage of collective pensions that are being built today for launch next year.

The message is that if you are a boomer and a pensioner, you may want to fix rather than flex, if you are a generation behind or further still from retirement, collective pensions will offer a pay rise in retirement. We save for a wage in retirement and it’s likely to go up for those whose bosses put them in a collective (CDC) pension plan.