Turning pots to pensions continues to be a subject that excites audiences who are committed to DC. This week Tom McPhail and James Hawkins appear to have had a good argument about whether Retirement CDC is an irrelevance with the Pension Schemes Act introducing Guided Retirement and default lifetime income.

It would seem hard to argue that Retirement CDC will be relevant when it becomes the way that those wishing to turn pot to pension are guided to. This is what WTW are intending to do with LifeSight, their DC master trust.

But when Retirement CDC is offered as one of several options (fighting with annuities) it is hard to disagree with Tom McPhail that it will look pretty irrelevant.

So far , WTW are the only master trust who have committed themselves to this rival to flex and fix. Tom is his usual political self!

Advisers and consultants attending the event seemed to agree broadly with independent expert and trustee Tom McPhail’s opinion that RCDC “sounds a bit like the financial services equivalent of socialism — a good idea in principle that never works in practice.”

I and my colleague Chris Bunford have argued on various digital platforms that waiting for a Retirement CDC option to appear is not a good idea , even if you are a socialist!

We don’t know yet how the legislation will look that delivers the chance to move to a Retirement Collective Pension  from 2029.

It will have to incentivise DC providers and their trustees to take on the considerable cost of setting up as a CDC proprietor or pass the second half of a savers career inside the master trust to a third party. So I think it unlikely that many master trusts or workplace GPPs will offer an “R-CDC”.

And the socialists (I think Tom means unions) are looking at CDC as an alternative workplace pension not as a decumulation option for a DC plan.

Where the vast majority of DC money is, is in schemes that people are no longer saving into. Tom explains that these include SIPPs taken out before Auto-Enrolment and now known as “legacy” within the pension industry. Could these be the obvious funders of Retirement CDC. Here the regulation is not with  the Pensions Regulator and is with the FCA until money becomes a Collective Pension.

What would be needed for a collective solution to be well funded would be bulk transfers of pots under guided retirement but this would mean a regulatory kafuffle (as Tom points out).

McPhail however express concerns with this regulatory direction, questioning whether it was wise to put members into any retirement solution without first establishing more about their individual needs.

“I think mandating a default solution that you put people in without talking to them is a recipe for disaster,” he said.

The difficulty is seeing a business model that works unless there is a captive audience (as Lifesight’s membership is), James Hawkins of Isio sees plenty of interest in providing the service but I’m not seeing it.

Isio’s Hawkins said they had seen interest from a number of providers, including those with “brand recognition” among retail investors. 

While recognising the challenges around scale and communications, Hawkins made the point that RCDC remains “the best options we have” for a large cohort of savers who remain disengaged from retirement options.

He said: “RCDC is good for the masses. It provides an easy solution that generates income for the individual, typically at a third more than a standard annuity.” 

All the interest is in UMES CDC – the workplace “whole of life” version.  It is being authorised now and while consultants are arguing to hold on – employers, unions and providers are moving ahead.

If UMES (whole of Life) CDC grows as expected by firms as various as BlackRock and Gallagher, then DC master trusts will be threatened by employers not only switching their member contributions but demanding their member’s pots be transferred to their workplace pension scheme.

R-CDC is good “for the masses” but the CDC we’ve got now is better still. I may not often be in pace with Tom but here I am. R-CDC looks to have been sidelined by alternatives!

As with Royal Mail’s CDC , WTW looks to be involved with a second rarity! The R-CDC looks a brilliant and iconoclastic answer to a unique problem.