fishtank wrote:toomuchcoke wrote:BELIAL wrote:You get no forecasts with the wing ding new CDC proposed scheme because you might get nothing
Can you give an example of investment environment that would produce zero pension from a CDC scheme that wouldn't equally produce zero pension from either a DC or a DB scheme?
A DB pension is protected by the pension protection fund, this guarantees that no matter what goes wrong with the fund or the company you would receive at least 90% of your pension.
The Pension Protection Fund is funded by levies from all the defined benefit schemes in existence. If the investment environment is so bad that a CDC scheme can't produce
any income, then I'd rather suspect that the investments backing a defined benefit scheme are also not producing any income either in which case the pension protection fund probably isn't looking very healthy either.
fishtank wrote:A company running a DB pension is legally compelled to fund that pension to its defined benefit level.
1. That only applies so long as the company is in existence and is solvent - there's no mechanism for forcing a company which went bankrupt some time ago to make additional contributions. 2. AIUI. Companies are only required to make good any shortfall "eventually", there's no legal requirement to that any shortfall in assets must be corrected immediately. 3. The surplus/deficit calculation is done (again AIUI) not a comparison of how much income the assets can produce against what is needed, but rather by assuming a certain sort of asset backing (100% corporate bonds IIRC?), calculating the amount needed to produce the desired income and comparing against that. Or to put it another way, the calculated surplus/deficit figure in only tangentially connected to whether the scheme really can meet it's obligations.
fishtank wrote:A CDC pension which is just a DC scheme with pooled assets is protected by nothing and a company has no obligation to fund anything.
I would suggest it's maybe a little more accurate not think of a CDC scheme as being akin to a DB scheme, only with the company backing sawn off ... Which might sound like a crippling change, but given that a CDC scheme would always be fully funded (if not in surplus) then the lack of a company guarantee (which might turn out not to be there when you need it anyway) isn't perhaps so much of a problem. People always seem to focus on the "possible risk" of a pension income reduction that's associated with a CDC scheme, only they seem to focus on it in a way that interprets "possible risk" as "this will absolutely happen" and "reduction" as "reduction to zero"
Whereas I look at one of the investment trusts I own shares in which has increased it's dividend
every year (granted not by more than inflation in every year) for the past 50 years and figure that all the CDC scheme requires is non-stupid legislation from the government and management by people who aren't complete muppets!
fishtank wrote:Given those points ANY investment or industrial environment that results in the insolvency of the fund would in the case of the two types of pensions produce two very different outcomes for fund members.
I would respectfully disagree ... If the assets of a CDC scheme are worthless, then the assets of a DB scheme are likely worthless too and if the economy has gone "casters up" to that extent then it's entirely possible that the pension protection fund is a busted flush and whatever company is behind a DB scheme might either no longer exist or be unable to make good the loss either.
