CDC easy to enable but needs clear governance from the get-go, MPs told : Update Video added

[TrueBlueTerrier]

https://www.professionalpensions.com/pr ... o-mps-told" onclick="window.open(this.href);return false;

Collective defined contribution (CDC) schemes will need clear and transparent governance frameworks, as well as effective communication strategies, to be a success, the Work and Pensions Committee (WPC) has been told.

In evidence to its inquiry into the mooted schemes, several experts told the committee the schemes could be enabled with small changes to existing legislation, including building in specific governance requirements, rather than full primary legislation.

Slaughter and May partner Sandeep Maudgil said this would be a "more surgical way" to enable the framework, allowing the schemes to be treated as money purchase - or defined contribution (DC) - schemes but with differing requirements from traditional DC schemes.

"The first thing you would need is a very clear law change [to] treat these schemes as money purchase unambiguously," he said. "Maybe you do something like you do with the master trusts [in the upcoming authorisation regime].

"You'd also need to look at what that means for the schemes and there might be some changes to CDC to avoid the money purchase legislation imposing specific design requirements. You then need to layer on specific governance, transparency and communication requirements."

London Business School executive fellow David Pitt-Watson added "communication is absolutely critical", and both the governance and costs associated with the schemes needed to be perfected at the outset. "Get the governance right, get the communication right, and make sure the first people who are doing this have the scale and the trust," he said.

He added this should include "trustees whose only duty is to the member of the scheme".

On top of this, there should be a central source run by The Pensions Regulator (TPR) to enable people to compare CDC schemes, First Actuarial senior actuary Hilary Salt told the committee.

"You have to make sure you have enough regulation to ensure that, for example, for every scheme provider funding and distribution and investment plan that isn't in the public arena, I'd suggest there is a dashboard on the regulator's website," she said. "Everyone can look at it; the academics and everybody else can pull apart every different scheme's plan and make sure there is a proper market, making sure people understand what they are getting from CDC schemes."

She added it was important lay trustees were included, claiming regulation had "driven lay trustees out of the trustee room to be replaced by professional independent trustees who just protect their own backs... and are really affected by herd instinct".

Mistrust
Pension freedoms must be included within the CDC framework, the committee heard, with Salt saying "there is absolutely no reason" why transfers couldn't be possible, partially or in full, while Maudgil said such lack of access would be "borderline inconceivable".

But Hargreaves Lansdown senior pensions analyst Nathan Long, while stating the firm was not "necessarily anti-CDC", warned it would add complexity to the pensions landscape, could further damage trust in pensions, and freedoms would cause problems.

Doing so could see those with lower longevity and larger pots who decide to use the flexibilities effectively cross-subsidised by a transfer of wealth both between generations and from the poor to the rich, he said.

"If those people take their money out, all of the sudden you have this shared pooling of risk in retirement weakened," he continued.

"There is a real danger that there will be a mistrust of the system if people perceive they are locked in. People will exercise choice, because we don't think people will trust this. The appetite is there for people who want to own their own retirement."

This may also be the case where there has been a bad history with pensions in the family, he added.

The evidence comes after the UK's first CDC scheme was agreed in principle between Royal Mail, its workers and the Communication Workers Union (CWU) to replace the firm's defined benefit (DB) scheme. While the scheme cannot yet be set up, the company and union are due to meet with a Department for Work and Pensions minister next week.

CWU national officer Ray Ellis told the WPC that the department's "mood music" was "broadly positive".

While CDC has been heralded as the potential middle ground between expensive DB and inadequate DC schemes, a university paper published week argued the industry should instead be focusing on collective individual DC schemes.

[fishtank]

If those people take their money out, all of the sudden you have this shared pooling of risk in retirement weakened," he continued.

That's a real danger, that you could have a "bank style" run on investments. To be honest I'm struggling to see how pension freedom is compatible with a Collective Scheme, transferring in, sure that's wonderful for the scheme but transferring out will not only be complex from a valuation point of view, it could be a disaster for the fund so I think the penalties might be severe.

[POSTMAN]

Update : Video added
http://parliamentlive.tv/Event/Index/43 ... 5a3c6aec52" onclick="window.open(this.href);return false;

Click on the below in the link to go straight to it...
10:26:04
Witnesses: Jon Millidge, Group HR Director, Royal Mail PLC, and Ray Ellis, National Officer, Communication Workers Union

[clashcityrocker]

Witnesses: Jon Millidge, Group HR Director, Royal Mail PLC, and Ray Ellis, National Officer, Communication Workers Union

Do you think Jon and Ray will be rushing to sign up for the new pension once the legislation is passed?
Will all our national officers?
How is the CWU pension fund these days?

[NWpostie]

My big question is. Has CDC has been proven anywhere in the world and how successful was it ?.

Do we also retain our AVCs that we already paid in ? I would hate for my personal savings plan paid in with my money being sequestered into it, I would prefer that to be stand alone and separate from the main pension so that we don't lose our money.

[mark.cup]

My big question is. Has CDC has been proven anywhere in the world and how successful was it ?.

Do we also retain our AVCs that we already paid in ? I would hate for my personal savings plan paid in with my money being sequestered into it, I would prefer that to be stand alone and separate from the main pension so that we don't lose our money.

I can't see your AVC being affected worst case I would assume you would no longer be able to pay anymore in!

[NWpostie]

My big question is. Has CDC has been proven anywhere in the world and how successful was it ?.

Do we also retain our AVCs that we already paid in ? I would hate for my personal savings plan paid in with my money being sequestered into it, I would prefer that to be stand alone and separate from the main pension so that we don't lose our money.

I can't see your AVC being affected worst case I would assume you would no longer be able to pay anymore in!

Personally I think we should be allowed to retain it and continue to pay into it, while the new pension scheme gets going in whatever form it takes, it's called not putting all your eggs in one basket.

[mark.cup]

I think there is a very good chance AVC's will just continue as they are and anyone that pays in can still build up an early get out fund!

[TrueBlueTerrier]

My big question is. Has CDC has been proven anywhere in the world and how successful was it ?.

Videos on RMC have quoted Hillary Salt as saying Holland has them, and only a single reduction of 2% for one or two years, this at the same time as when DC schemes cost of buying an annuity rose nearly 30%.

The evidence session in parliament (video also on RMC) also mentioned this as well and how the risk can play out during crashes, and what is likely to happen when people transfer out.

The case for collective defined contribution http://www.pensionsage.com/pa/dec-CDC" onclick="window.open(this.href);return false; (Holland and 2%)

What is a collective pension scheme? https://www.unbiased.co.uk/news/pension ... ion-scheme" onclick="window.open(this.href);return false;

[RobertT]

Do we also retain our AVCs that we already paid in ? I would hate for my personal savings plan paid in with my money being sequestered into it, I would prefer that to be stand alone and separate from the main pension so that we don't lose our money.

Flexiplan and Bonusplan are both linked to your RMPP benefits – to fund the tax free lump sum. But can also be used as stand alone DC schemes if you wish. They are in your name and you have the choice what you want to do with the money.

There is absolutely no chance they will be automatically transferred into the CDC – why on earth would they be?

Under the original Cash Balance plans of a few months ago, Flexiplan & Bonusplan would continue. So I assume that will still be the case with the transitional arrangements. Although that has not yet been confirmed!

As the CDC scheme will be totally separate from the RMPP, I doubt if the current AVC’s will continue when/if that is brought in.

[NWpostie]

Do we also retain our AVCs that we already paid in ? I would hate for my personal savings plan paid in with my money being sequestered into it, I would prefer that to be stand alone and separate from the main pension so that we don't lose our money.

Flexiplan and Bonusplan are both linked to your RMPP benefits – to fund the tax free lump sum. But can also be used as stand alone DC schemes if you wish. They are in your name and you have the choice what you want to do with the money.

There is absolutely no chance they will be automatically transferred into the CDC – why on earth would they be?

Under the original Cash Balance plans of a few months ago, Flexiplan & Bonusplan would continue. So I assume that will still be the case with the transitional arrangements. Although that has not yet been confirmed!

As the CDC scheme will be totally separate from the RMPP, I doubt if the current AVC’s will continue when/if that is brought in.

Hopefully. At the moment there is litle information coming out regarding the structure of the CDC and how it will work, in the meantime our current DB scheme is expected to fiinsh in March and a new DC scheme to commence on 1st April.

[NWpostie]

My big question is. Has CDC has been proven anywhere in the world and how successful was it ?.

Videos on RMC have quoted Hillary Salt as saying Holland has them, and only a single reduction of 2% for one or two years, this at the same time as when DC schemes cost of buying an annuity rose nearly 30%.

The evidence session in parliament (video also on RMC) also mentioned this as well and how the risk can play out during crashes, and what is likely to happen when people transfer out.

The case for collective defined contribution http://www.pensionsage.com/pa/dec-CDC" onclick="window.open(this.href);return false; (Holland and 2%)

What is a collective pension scheme? https://www.unbiased.co.uk/news/pension ... ion-scheme" onclick="window.open(this.href);return false;

Interesting reading and the fact its been tried and tested in Holland and Canada should give us the opportunity to study what others have done before and the pitfalls etc, its essential that we go in this with as much information as possible.

I will be aving at look at how they did in canada and Holland.

Time spent in recce is never time wasted.

[fishtank]

When studying the Dutch example you have to take into account the fact that in Holland the state pension is around 70% of the minimum wage, that's over £200/week. What that means is that they have a much better safety net and can therefore afford a greater level of risk with occupational pensions. It's also a relatively high wage country compared to us so they tend to have more savings and other investments.

Another point is that these CDC schemes in Holland are mostly industry-wide rather than single employer pools, this greatly reduces the risk of structural changes to the business negatively affecting the scheme.

From the research I've done the schemes in Holland have seen mixed results from a 20% drop in pension in one case to an average of around 2%.(Quoted by Hilary Salt)

The biggest complaint seems to be intergenerational inequality with younger members of the scheme having to "smooth" out the pensions of retirees by increasing their contributions.