The DWP’s CDC consultation comes to an end this week. This is the first serious attempt at finding a new way to do pensions, trying to find that middle way between defined benefit and defined contribution. Some will argue it’s too little, too late, and that this could have really only got traction if it was driven forward in the early 2000s as DB schemes were beginning to fall off a cliff. But as we start a new year, let’s be positive and I would argue:
“All we are saying, is give CDC a chance.”
While the DWP consultation is quite narrow in scope and is driven, in the main, by the Royal Mail and CWU negotiations it does raise the potential for innovation and development of the concept. While it will no doubt be a long and winding road, with some difficult trade offs and technical details to overcome, I’m convinced that we can work it out.
We’ll need the taxman to have a long hard think about how these schemes might be treated and we’ll also need to really make sure we communicate the CDC concept to members in a way that they can understand, as one of the biggest issues with CDC is managing expectations, particularly if target incomes fall. Defined benefit schemes continue to close and defined contribution schemes are still untested as being the bulk of people’s retirement savings.
What worries me is that when I’m sixty-four, or, more likely, seventy, I’m going to want a degree of certainty as to how much money I’ll have for my retirement, and risk sharing is a tool well worth having in a scheme’s toolkit to try to improve outcomes for scheme members. So we welcome the DWP’s consultation and believe that it won’t be long until we have the first proper CDC scheme up and running on the basis of the new legislation.
While I’m not expecting a huge rush into CDC, I do believe it will be attractive to some schemes moving away from DB. I also think that master trusts could be key delivery vehicles for CDC in the future, especially in helping manage volatility up to, and through retirement. People just want help! when it comes to managing their retirement and as a scheme we should take the view that I want to hold your hand. It’s managing this uncertainty, because tomorrow never knows, that is the real selling point of CDC, and while it cannot go anywhere near offering an explicit or implicit guarantee, it can give people a chance of understanding and achieving the target they are trying to hit. After all, it’s Money (that’s what I want) and with more certainty than can be offered just within pure DC.
So, I’m hoping that the DWP don’t let me down in the development of CDC and that they give enough flexibility in the legislation to allow the further development of innovative products going forward. So, hopefully, with a little help from my friends (or those who support CDC), that’s where we’ll end up and with it the real opportunity to continue to develop solutions that deliver for savers.So, please Mr Postman (yes…. I know that was only a cover by the Beatles, but give me a little leeway…), keep going with leading the way in developing a new form of pension provision that will really deliver for members in the future. I’ve got a feeling that this is the year that CDC can really come to life and if we look ahead, and not backwards to yesterday, just think of the possibilities that could open up for people. And to the CDC detractors I’d simply reiterate the title of this piece, get with the pensions positivity that is being driven by Professional Pensions, and I would hope they would just let it be.
Smart is a global savings and investments technology platform provider. Co-founded in 2014 by Andrew Evans, CEO, and Will Wynne, MD, it is one of the UK's largest providers of workplace pensions. Its award-winning master trust, Smart Pension, is overseen by independent professional trustees.
In 2020 Smart Pension was named Master Trust Offering of the Year at the Pension Age Awards. Other awards include DC Master Trust of the Year, DC Innovation of the Year and Retirement Innovation of the Year in the 2019 UK Pensions Awards. Smart Pension was also named European Pension Fund of the Year 2019 in the European Pension Awards.
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