Government fires starting pistol for collective DC schemes

[BELIAL]

What do you think most posties consider to be a "pension " or "wage in retirement" ? Seems to me the wording implies an income of some sort ,not a possible big fat 0.

We're just covering old ground here!
It should provide an income, but not one that's guaranteed! It should go up, it might go down. But the chances of it paying no pension at all is in theory possible, but highly unlikely.

Anybody who knows anything about equities will have either personal experience or knowledge of shares or funds that have tanked to one degree or another. If you don't just take a look at RM shares, they're currently sitting about 60% down from their highest point.

You could say that share investment is a form of gambling and they'll always be winners and losers, but all data on the subject says that equities are the best long term way to invest. Pensions are long term things and any dips and troughs should be evened out over time.
I've certainly found that out having been investing for about 20 years, and despite taking big hits during two stock market crashes, I've made good profits.

Nobody is saying CDC is foolproof, because nothing is. But it looks like it's coming our way. So get used to it!

Even more sinister is the fact that this DC scheme opens the floodgates for mass redundancies by removing a massive cost liability from RM, why would any workers "representative" pave the way for that?

I think you might find it's the opposite!

A DB scheme potentially puts liabilities onto a companies balance sheet. So if the investments don't perform adequately it's up to the company to fund the difference, (although employees might also be asked to contribute more). In simple terms, if they're using up cash to keep the pension scheme afloat, they've got less for employee wages and that could mean potential job losses.

We were told RM's contribution to keep the old DB scheme open would have to increase 3 fold from about £400 million a year to £1.2 billion.
CDC keeps RM's contribution at £400 million.

If RM were paying that extra £800 million per year, that really would be a good reason for them to reduce the workforce.

You think a private companies prime objective is about workforce welfare
Private companies exist for ONE single reason -To make profit ; that is what they are for and how they are judged by the market.
I note your "we were told"

black is white balls ,follow the money.

[RobertT]

CDC isn't exactly RM's cheapest option when it comes to pensions!

They've agreed to pay in 13.6% of our pay, they're also paying for the legislation to be drawn up. They've made presentations to the Pensions Select Committee and the CDC pension consultation. There's probably a certain amount of work going on behind the scenes that we don't know about too. It all costs time and money!

The DBCBS is slowly increasing RM's RMPP liabilities as our lump sum entitlements increase. According to the mediators report drawn up during the 4 pillars negotiations, the DBCBS has only got a lifespan of 5 years until it becomes unaffordable.

RM's original pension proposal was for a normal individual DC scheme with a 10% employer contribution, with no extra hassle or liabilities as above.

By law they currently only have to pay in 2%, rising to 3% in April.

In time the company could even go the lifestyle courier route, similar to Hermes, etc and make us all self employed. They wouldn't have to offer us a pension at all then!

[Woody Guthrie]

CDC isn't exactly RM's cheapest option when it comes to pensions!

When deciding what the cheapest option is you have to factor in the financial and reputational cost of a long drawn out labour dispute.
The DC option was an opening gambit and never going to fly, they knew it and only the most gullible on our side didn't.

What counts is where we were and where we are.
We're in a poorer position than we were and the only explanation for that was some murky and unsubstantiated claim that RMs contributions were about to triple. We're more than a year on from the dispute and apart from some vague indicators from some sections of government (will they still be in government?) we are no further forward with this potential collective (DC)/annuity hybrid.

It's a shite state of affairs.

[RobertT]

When deciding what the cheapest option is you have to factor in the financial and reputational cost of a long drawn out labour dispute.
The DC option was an opening gambit and never going to fly, they knew it and only the most gullible on our side didn't.

And it took a totally new concept in UK pensions for DC not to happen, due to the short term nature of the DBCBS.
RM want to know what their costs are going to be upfront, DC and CDC do that for them. Although there is still some potential deficit issues from the DBCBS and the DBLSS.
If CDC doesn't happen for whatever reason, I don't really think there's any other long term solution other than DC.

What counts is where we were and where we are.

I agree!

We're in a poorer position than we were and the only explanation for that was some murky and unsubstantiated claim that RMs contributions were about to triple.

My memory is that the CWU and the mediator agreed, after months of talks the DB scheme couldn't carry on!

We're more than a year on from the dispute and apart from some vague indicators from some sections of government (will they still be in government?) we are no further forward with this potential collective (DC)/annuity hybrid.

We've had the pensions industry get involved, the pensions select committee discuss it and a consultation period which we're due to hear the findings of by the 10th April I believe.
If that's positive, which seems likely, as it needs primary legislation it needs to be part of the Queens speech on the state opening of parliament, which is in May. Or else it'll be put back at least 12 months I assume.

CDC has got nothing to do with annuities!

It's a shite state of affairs.

I agree it's not great, especially with the political uncertainty with Brexit, which in my opinion is the main thing that might scupper CDC. But considering we're talking about a brand new pension model in the UK which needs to be knitted into current pension rules, personally I think they've actually done quite a lot in the last 12 months or so.

It'll be interesting to see what happens!

[Woody Guthrie]

CDC has got nothing to do with annuities!

An annuity is simply a catch-all term for a pension lump sum that's transferred into an income, assuming for pension freedom purposes each individual pension will have a nominal value that's really what this is at the end of the day. The only difference being you won't have to go to market to buy an annuity.

I suppose to be pedantic you could call it a collective-with profits-defined contribution-annuity scheme since it carries elements of all but CWPDCA is a bit long winded.

[RobertT]

CDC has got nothing to do with annuities!

An annuity is simply a catch-all term for a pension lump sum that's transferred into an income, assuming for pension freedom purposes each individual pension will have a nominal value that's really what this is at the end of the day. The only difference being you won't have to go to market to buy an annuity.

I suppose to be pedantic you could call it a collective-with profits-defined contribution-annuity scheme since it carries elements of all but CWPDCA is a bit long winded.

Seems a long winded way of looking at it!

Why not just say the pensions with CDC get paid out from one big pot of money, with the proviso that if there's not enough in there to pay everyone what they've accrued, benefits will be reduced.

An annuity is what you might buy using a individual DC pension! And won't be reduced if investments don't perform adequately.

But each to their own.

[BELIAL]

Agreed ,there you go you've all had a massive pension /pay cut and your union bigwig sold it to you as an incredible deal. Trick s**t stuff snuffing out a 90% strike vote with months of delay and bullshit baffles brains.
they are bloody good at it

[arnold cheshire]

CDC has got nothing to do with annuities!

An annuity is simply a catch-all term for a pension lump sum that's transferred into an income, assuming for pension freedom purposes each individual pension will have a nominal value that's really what this is at the end of the day. The only difference being you won't have to go to market to buy an annuity.

I suppose to be pedantic you could call it a collective-with profits-defined contribution-annuity scheme since it carries elements of all but CWPDCA is a bit long winded.

Seems a long winded way of looking at it!

Why not just say the pensions with CDC get paid out from one big pot of money, with the proviso that if there's not enough in there to pay everyone what they've accrued, benefits will be reduced.

An annuity is what you might buy using a individual DC pension! And won't be reduced if investments don't perform adequately.

But each to their own.

it sounds terrible

[RobertT]

Agreed ,there you go you've all had a massive pension /pay cut and your union bigwig sold it to you as an incredible deal. Trick s**t stuff snuffing out a 90% strike vote with months of delay and bullshit baffles brains.
they are bloody good at it

The deal was for a pension for all, and one that provides an income rather than just a pot of money. New legislation has to be drawn up for it to happen, which makes it a big thing in pension circles.

When the agreement was made, we all got booklets from both RM and CWU giving us all the details about the CDC pension. They clearly say the pay outs are targets rather than guaranteed amounts. Here are links to them online:
RM's pension booklet
CWU's 4 Pillars agreement

Therefore the union membership had the opportunity to read all the details and make an informed decision. We've all got brains, we're all capable of thinking for ourselves and we all voted accordingly. With the result being:

Yes – 90.1%
No – 9.9%

The turnout was 62,417 which represented a turnout of 55.1%, which isn't particularly high. But do you seriously think so many people don't understand basic plain English?
Or perhaps they just saw 13 months of back pay and voted for that! Which they would have got had the pay rise been implemented in April 2017 anyway!

[BELIAL]

The deal was for a pension for all, and one that provides an income rather than just a pot of money. New legislation has to be drawn up for it to happen, which makes it a big thing in pension circles.

When the agreement was made, we all got booklets from both RM and CWU giving us all the details about the CDC pension. They clearly say the pay outs are targets rather than guaranteed amounts.

Can you tell me what my pension Income might be in retirement? Could it be Nothing?
A cuddly squirrel wont buy me bread and water.

[RobertT]

You really do like going around in circles don't you.

Can you tell me what my pension Income might be in retirement?

I already have told you what it might be, but that's obviously just a target.

Could it be Nothing?

Technically in a world war three, worst case scenario! But that could be true of any other kind of investment too.

But in the real world, do you really think the £ Billions going into CDC will just disappear into thin air?

A cuddly squirrel wont buy me bread and water.

If you think CDC won't give you a decent pension or even no pension at all, just opt out, it's not compulsory!
Perhaps you'll be better off keeping your contributions in your pocket. It's your choice!

[heapsy]

I must admit I'm not confident about this CDC scheme. There still seems to be plenty of room for RM to come up with a poor pension. Who exactly will oversee WHERE the contributions are invested? If the past is anything to go by then it will be the same old, same old. IF I were to invest the money I would feel a bit more confident. As any of us know who are investing ourselves will know, there are some good funds / fund managers out there, but I doubt very much if the money will go anywhere near their expert hands. The CWU have, I feel, let us down badly. I would much rather invest the money myself tbh.

[RobertT]

It's all opinions, but personally I think this is probably the best we're going to get if we want a pension that gives us an income. Rather than a individual pot of money with the option to buy an income(an annuity), which is poor value for money!

I think you need to work out the maths to see if it's a good deal or not!

CDC offers a guaranteed lump sum, a targetted pension income plus a spouses pension of 50%.

Based purely on contributions and current basic full time pay and allowing for no annual increases or decreases whatsoever. There's a total of £4,412 going in each year, which provides a target pension of £281 and a lump sum of £884 at the NRA of 67.

To get roughly the same benefits from a DC pension/annuity, you would need a pot worth about £6,600. So in simple terms, you would need your investments to grow around 50% every year to keep pace, let alone be better off.
* There is also the choice to drawdown with DC.

Obviously the income from CDC is targetted and may change, while an annuity is for life, once bought. So the question is, will the CDC benefits go up, down or stay roughly the same over the long term?

The answer is nobody knows for sure, but we do know broadly speaking how and where the money will be invested. This taken from the Anticipated design of CDC document:

The CDC Section’s overall split of assets between Return-Seeking Assets and Low-Risk Assets (as defined in Section 3.3 below) is to be calculated based on the Section’s liability maturity profile and using the valuation assumptions. The invested assets backing each Section member’s pension liabilities are to be split as follows: 

100% in Return-Seeking Assets supporting pensions for members until age 67, 

Switching uniformly from this position over a 23 year time frame to 

100% in Low-Risk Assets supporting pensions for members from age 90 onwards. 

The Section’s overall split of assets is to be the weighted average of the above holdings for the Section membership. This aggregate approach means that the Section’s investment policy is resilient to structural changes in the membership profile and the RMG workforce. 

The above split is that required for invested assets, after excluding any cash holdings required for liquidity as advised as necessary by the Investment Adviser. 

-3.3 Return Seeking and Low-Risk Components

The Return-Seeking Asset holdings are to target a good level of returns over the long term, and then the blend to a combination with Low-Risk Assets is to provide more stable support for members’ pensions once in payment. 

The Return-Seeking Assets are a diversified growth portfolio, chosen so that: 

the expected median level of returns is within a specified margin of that on a diversified global (currency hedged) equity portfolio, and 
the volatility of returns is advised by the Trustees’ Investment Adviser to be as low as can reasonably and efficiently be achieved. 

The Low-Risk Assets are an appropriate mixture of bonds and other low-risk assets which the Trustees’ Investment Adviser advises carry a ‘low risk’ (to be defined), and have an appropriate duration and nature given the remaining duration and expected level of price inflation linkage of the Section’s liabilities. 

History tells us that equities outperform most other forms of investment over the longer term, with the caveat that past performance is no guide to future performance. But in practice our money will be invested with several different fund managers, in I assume lots of different sectors, so risks will be spread as widely as possible and for a long time, so ironing out the peaks and troughs.
They'll also be an element of lifestyling as we get older to preserve what we've accrued, meaning a lower chance of our pensions in payment being reduced.

We all know it's not perfect and not as good as a DB scheme or as flexible as an individual DC pension. But personally I think it's got potential, it should pay out more than a DC scheme/annuity and am looking forward to seeing how it works out.

[Woody Guthrie]

I think one of the biggest questions will be how it fits in with pension freedoms.
The last thing the fund will want is members getting to retirement age basically using it as a conventional DC scheme and taking their money elsewhere, the strength in the fund lies in its size so how flexible it can be with regards to drawdown or transfer is difficult to say.

[RobertT]

I think one of the biggest questions will be how it fits in with pension freedoms.
The last thing the fund will want is members getting to retirement age basically using it as a conventional DC scheme and taking their money elsewhere, the strength in the fund lies in its size so how flexible it can be with regards to drawdown or transfer is difficult to say.

Agreed!

I believe the idea is that we could transfer out in a similar way to a CETV process with a DB scheme. With a value put on your individual benefits at the time. That could probably be done at any age(you don't have to wait until CDC retirement age), you could then draw it down via a DC arrangement from age 55 if you wish.

It is covered in the anticipated design link I provided in my previous post.

As long as there are future employees coming along to replace those who leave, then the size of the scheme should stay roughly the same. But I think we all know RM want to reduce the workforce, so that could obviously cause problems.

I think the long term future of CDC is bigger than RM, but that relies on other companies wanting to get on board. And I don't think that's likely in the shorter term at least.