It is good to see eye to eye with Darren , Nico and their guest Glyn Bradley. This podcast starts with a half an hour of actuarial joshing between Nico and Glyn which you might enjoy, especially if you like the polite attempts of Darren to steer the conversation onto something that everyday people can understand

I agree with Darren’s summary which touches on this but explains what the main subject of this 90 minute game is. The second hour is about value for money as a service to those seeking a pension rather than the performance analysis of what I elsewhere call “DC’s first half (accumulation). This I assume to be Darren writing the pod’s preamble,

In this episode of V-FM Pensions hosts Darren and Nico talk to WTW Senior Director and Chair of the IFoA Pensions Board, Glyn Bradley.

We start with the big news of the week… the triple lock and the question of what the state pension is actually for, before getting stuck into retirement income.

Is an income really sustainable if it lasts for life but buys you less every year? Are pension illustrations anchoring people to the wrong numbers? And what does all this mean for guided retirement, CDC and the way we think about value for money?

We also somehow manage to cover cricket, philosophy, Gödel’s incompleteness theorem, and ship money. And, of course, we find out how Glyn got into pensions and what value for money means to him.

A Pod that focusses on the wage in retirement

Glyn has had posted his recent article on my blog last week and you can read it here. His focus is on VFM as the income it gives people in retirement.

His remit he’s given himself is to give people a benchmark with which they can judge what their DC pot can give them as an income. Is it, he asks, likely to be an increasing , an inflation matching or what he calls elsewhere a falling income (so long as there is inflation)? He concludes the benchmark should be a CPI inflation linked income for life.

There is an excellent tie into Richard Smith’s work on falling income , promoted by the ERIs we’ll get in the Pensions Dashboard. The actuarial estimate is that half the value of a CPI income linked CDC pension is in its paying CPI inflation increases. That CDC pensions are compared with level annuities on the dashboard shows how much people need a benchmark of a CPI increasing wage for life.

The WTW researcher in Glyn Bradley

Glyn Bradley goes further and calls for the default to have a spouse’s pension of 50% of the member’s pension at death paid automatically. It should be noted that we plan to offer spouse’s pensions to all retiring with the Pensions Mutual CDC scheme and people will have to opt out of it.

But I shouldn’t bring whole of life CDC into this review of Glyn Bradley’s work. He is employed as a researcher for WTW and they are promoting only Retirement CDC, this podcast plays the game and does not bring lifetime CDC into the discussion.

Should the benchmark include a spouse’s pension if the pensioner dies first?

VFM for Glyn Bradley is based on the service offered to someone in a pension scheme and therefore includes the second as well as the first half of the game. If we consider his benchmark to be a lifetime income growing at CPI and paying a pension of 50% to a bereaved spouse, then a guided retirement pathway that pays less than this is not providing the pension that is.

We can argue whether the guarantee of a guaranteed inflation linked annuity is better than a CDC inflation linked annuity (that could pay above or below inflation increases) but I hope that in time we will see that an inflation linked lifetime income is how to judge value for money. This is the comparison that actuaries make between CDC VFM and DC VFM. This is where the 60% improvement from CDC came from.

Nico, in the dying moments of the podcast accepts that though matching assets can guarantee the income, people need to be invested in the “second half” in equities which produce over time inflation linked income through dividends. I suspect that the mighty actuary will be won round to CDC in time.

Appendix; Richard Smith is everywhere these days!

Richard is everywhere on this podcast and if you still have time, you can hear him talk with us on the Pension PlayPen at 10.30 am tomorrow (6th October). More on adjacent blogs.