Pension transfers can go ahead under collective schemes

Post by **TrueBlueTerrier** » 19 Apr 2018, 16:40

https://www.ftadviser.com/pensions/2018 ... transfers/" onclick="window.open(this.href);return false;

Collective defined contribution (CDC) schemes can allow pension transfers, a senior partner at Aon Hewitt.

Several pension experts have questioned if collectively-invested pension schemes would be able to comply with pension freedoms, which were introduced in 2015.

But speaking at a Pensions Management Institute conference in London today (19 April), Kevin Wesbroom said CDC scheme members could have a transfer value anytime they wanted, up to the point of retirement.

He said: "It's a fair share of the fund. I'm going to look underneath the hood of the CDC scheme - we are always fully funded - and calculate the fair value of your share of this collective arrangement.

"It will feel like a defined benefit (DB) transfer probably, but you will have access to it at any point in time up to retirement."

CDC schemes differ from DB pensions in the sense they do not guarantee certain incomes in retirement.

Instead, CDC have a target amount they will pay out, based on a long term, mixed risk investment plan.

These schemes also differ from the traditional defined contribution (DC) plans in that they do not produce individual pension pots. Instead they invest savings in a larger collective pot, which provides an income to individuals during their retirement.

The main issue with transferring out of a CDC scheme is their collective nature and the is a sharing of risk, which could be undermined in members are allowed to transfer out.

The Pension Schemes Act 2015 created by the coalition government defined CDC as a distinct pension category, but secondary legislation to bring them into effect was never introduced.

Mr Wesbroom said one of the advantages of a CDC scheme, when compared to a DC plan, was that the money is collectively invested, and the scheme acts as its own insurance company, so it can pay an income for life.

He said: "We get an outcome that doesn't play the pensions roulette, and I'm getting a higher return, since I'm investing for longer term."

Royal Mail is currently working with the Department for Work and Pensions on the changes needed to introduce CDC schemes in the UK, which was also previously confirmed by pensions minister Guy Opperman.

Mr Wesbroom said this would probably lead to more CDC schemes being introduced.

Royal Mail reached an agreement with the Communication Workers Union in February, as part of which a CDC scheme will replace its DB one, which closed at the end of March.

In the meantime Royal Mail workers have approved this deal, which also includes the creation of a DB lump sum vehicle alongside the CDC scheme.

With these two pension arrangements, the company would expect to contribute 13.6 per cent of members' pensionable pay, and members would contribute 6 per cent.

fishtank · Post by **fishtank** » 19 Apr 2018, 17:23

Saying you can transfer out is not the same as showing how it could work or how the scheme could be protected in the event of a substantial event (like a prospective increase in contributions or company restructuring) causing a run for the door. Penalties I presume?

I also think at some point a maximum lifespan of the plan will be introduced, probably NRA + 20/25 years.

Schiff · Post by **Schiff** » 19 Apr 2018, 20:31

TrueBlueTerrier wrote:https://www.ftadviser.com/pensions/2018 ... transfers/

"It will feel like a defined benefit (DB) transfer probably, but you will have access to it at any point in time up to retirement."

That is worrying. Transfers out of DB schemes are now very difficult to achieve. The member must pay for financial advice and few financial advisers will touch such transfers.

This will not be a DB scheme so surely transfers out should be on the same basis as any other DC scheme which would be fairly straightforward. I forsee legal challenges if obstacles are put in place to try to prevent members transferring the value out of an unwanted CDC scheme.

Celgar · Post by **Celgar** » 22 Apr 2018, 10:28

It is usually a bad idea to move your pension from your works pension to another company. The most recent case of this being how the steelworkers were recently conned into switching to other pension providers. The terms 'fair share' & 'fair value' also worry me a little as when certain people use that 'F' word it invariably isn't fair at all. The government have stated concerns that CDC schemes may not be able to observe their pension freedoms legislation. Having all the money in a sort of collective insurance fund as it is now being called seems to go against being able to withdraw from the CDC at any time.

Schiff · Post by **Schiff** » 22 Apr 2018, 16:37

Celgar wrote:It is usually a bad idea to move your pension from your works pension to another company. The most recent case of this being how the steelworkers were recently conned into switching to other pension providers. The terms 'fair share' & 'fair value' also worry me a little as when certain people use that 'F' word it invariably isn't fair at all. The government have stated concerns that CDC schemes may not be able to observe their pension freedoms legislation. Having all the money in a sort of collective insurance fund as it is now being called seems to go against being able to withdraw from the CDC at any time.

It is usually a bad idea to move the money from a defined benefit works pension, which is what the steelworkers were persuaded to do.. The CDC is not by any stretch of the imagination a defined benefit scheme.

Too many people switching their "fair share" from a CDC scheme would erode any perceived advantage of a CDC scheme over a normal DC scheme The fact that transfers out weaken the overall fund are no reason, however, to deprive individual members of their pension freedoms if those freedoms provide a better pension solution for the individual member.

fishtank · Post by **fishtank** » 22 Apr 2018, 18:19

Too many people switching their "fair share" from a CDC scheme would erode any perceived advantage of a CDC scheme over a normal DC scheme The fact that transfers out weaken the overall fund are no reason, however, to deprive individual members of their pension freedoms if those freedoms provide a better pension solution for the individual member.

I agree with you, any argument to dilute pension freedoms or impose artificial barriers should be resisted. There are obvious cost benefits to Zurich from administrating multiple individual DC pensions rather than just a few but they are not allowed to block pension freedoms, why should a CDC be different, it's only pooled investment, it isn't an evenly shared pot.

Of course the problem is more withdrawals/transfers means a smaller pot and a smaller pot attracts poorer returns and is more difficult to balance risk so hitting targets might not be as simple as the CWU seems to think. This is often a problem in the early years of these schemes unless they've been primed with capital, now where did we last see a huge chunk of surplus cash? I know I've seen it around here somewhere....