Government fires starting pistol for collective DC schemes

[BELIAL]

'It's an equitable life'

[RobertT]

'It's an equitable life'

I'm not sure whether EL is really a very good example of the point I think you're trying to make!

They went 'bump' because they were offering Guaranteed Annuity Rates on some of their pension products, which they couldn't afford to pay out.
In some ways you could say they were in a similar position to a company offering a DB pension scheme that had built up a big deficit.

Those GAR's are very valuable things for an individual to have, as the rates are significantly higher than you can get on the open market. But they're an albatross around the necks of the insurance companies who offered them.

EL closed to new business in 2000, but continued to invest for those members wanting to stay, which they still do today. According to their website they still have substantial assets and over 300,000 policyholders(at 31/12/17). But some of their annuities have also been transferred to other insurance companies.

When I first started paying into RM Flexiplan I was invested in EL with profits(no GAR), so have personal experience of this!
When the sh!t hit the fan, I transferred out into a unit linked fund with Norwich Union as it was at the time, which has turned out to be a good move despite taking a 15% hit on the balance. Although if I'd had a GAR, I may not have made the same decision.

When Zurich took over the RM AVC's, anyone still with EL was given the choice whether to stay or go. So I wouldn't be surprised if there are still RM employees invested with EL?

A GAR is great thing for a saver to have, because it potentially offers a much better outcome for your pension savings over the longer term. For example:

A pension pot worth £100,000 today could buy you a level annuity of £5,000 per year(5%) at around age 60-65. So it'll take 20 years to get all of the money.

But if you have a GAR of 12%, which EL were giving some of it's policy holders, you would get an income of £12,000 per year. A total of £240,000 over the same 20 years!

That was why EL went the way they did, not because the investments performed particularly badly.

But it's probably best if we don't let the facts get in the way of a few silly one-liners!

[stephen500]

http://www.actuarialpost.co.uk/news/art ... -15560.htm

The Department for Work and Pensions (DWP) published a consultation on implementing collective defined contribution (CDC) schemes which closed on 16 January. This came following a request from Royal Mail for UK legislation to be amended to allow CDC schemes. Unlike traditional pure defined contribution (DC) schemes, where the member bears the bulk of the risks, and defined benefit (DB) schemes, where the employer takes on the risks, CDC schemes allow risks to be shared between members.

In February 2018, Royal Mail and the Communication Workers Union (CWU) were the first to announce that they had agreed to work towards replacing their current DB and DC schemes with a CDC scheme for around 142,000 employees. However, this was subject to the proviso that the Government would need to legislate to allow for such schemes.

Even though the Pension Schemes Act 2015 contains legislation which could be used to provide for CDC schemes, these provisions would significantly change the existing pension regime, therefore the Government has decided that new primary and secondary legislation is required instead.

CDC benefits are intended to be a form of money purchase (MP) benefit, so that it will be clear to employers that they will not have to fund any shortfall in benefits that might arise. Consequently, CDC schemes would not be eligible for entry into the Pension Protection Fund (PPF) in the event of employer insolvency. Similarly, CDC schemes will be required to communicate clearly with members to ensure they understand that the level of benefits is not guaranteed and will depend on various factors, including the performance of scheme assets. The Government intends that they will be trust-based private sector schemes and no changes to the categorisation of existing schemes will occur, so CDC schemes will be for new benefits only.

Initially, the regulatory framework will just allow for CDC schemes of the broad form and nature of the one proposed by Royal Mail, however, the intention is that the DWP could modify the framework in light of future experience without an Act of Parliament being required.

The DWP intends that CDC schemes will be occupational trust-based schemes and will be subject to an assurance and regulatory regime similar to that for master trusts. They will, therefore, be scrutinised by the Pensions Regulator (TPR) before they are authorised. As with master trusts, the costs of authorisation would be met by the scheme.

The authorisation process would look at various matters including the scheme’s continuity strategy, its financial sustainability, the robustness of its systems & processes, and whether individuals significantly involved in its running are ‘fit and proper’. It would also consider the level of target benefits relative to contributions, how benefit adjustments are carried out, how transfer values are determined, and how communications explain to members what they might expect from the scheme. Legislation will include provisions enabling additional requirements to be added later if necessary.

Before a CDC scheme can approach TPR for authorisation, an independent actuary will be required to peer-review the actuarial assumptions underlying the scheme’s design. Once authorised, a CDC scheme will be required to appoint a scheme actuary to carry out annual valuations to assess whether benefits should be adjusted (up or down), and to test the scheme’s overall sustainability.

The DWP considers that such adjustments should apply across the entire scheme membership (i.e. to accrued pensions as well as pensions in payment) and should be the result of a mechanism set out in the scheme rules, not trustee discretion.

Although the DWP believe that the current Trustee Knowledge and Understanding (TKU) requirements should suffice for CDC schemes, it is minded that TPR is likely to consider the collective expertise and experience of the proposed trustees as part of the authorisation process.

As they will be a form of MP benefit, the DWP proposes that CDC schemes will be subject to the same charge cap applying to standard MP schemes. Even though the cap will be set at the same level (i.e. 0.75% p.a. on funds under management), it will apply to the scheme as a whole instead of to an individual member’s pot.

Transfer values are also an area for consideration as the DWP acknowledges that the existing basis for calculating transfer values might need to be amended for CDC benefits.

CDC schemes would be a new addition to the pensions landscape. Although the DWP intends to legislate as soon as possible, it might be some time before the necessary framework is in place. It also remains to be seen how much demand there is amongst employers to use a CDC scheme for their pension provision.

I think "CDC schemes would not be eligible for entry into the Pension Protection Fund (PPF) in the event of employer insolvency." is all I need to know.
The rest of the whole article was hardly understandable to the average man.
I have a degree and I found most of it hurting my head, just to begin to understand it.
So glad that within 2 years, I will be finished with pension schemes. I just wish this new CDC does not come in until after I have left in early 2021.

[RobertT]

I think "CDC schemes would not be eligible for entry into the Pension Protection Fund (PPF) in the event of employer insolvency." is all I need to know.
The rest of the whole article was hardly understandable to the average man.
I have a degree and I found most of it hurting my head, just to begin to understand it.
So glad that within 2 years, I will be finished with pension schemes. I just wish this new CDC does not come in until after I have left in early 2021.

When you think about it, the fact that CDC schemes won't be eligible for the PPF, is irrelevant anyway. Just read the sentence before the one you mention:

CDC benefits are intended to be a form of money purchase (MP) benefit, so that it will be clear to employers that they will not have to fund any shortfall in benefits that might arise.

The whole point is that us & RM pay in the money, which is then invested to provide the benefits. If those investments don't perform adequately, the accrued benefits might go down.
So there is no liability on RM at all, except for the contributions they pay.

Therefore should RM ever go bust, all the money required to fund our CDC benefits up to that point, however much they are, should already be in the scheme but still be subject to the ups and downs of the investments thereafter.

If CDC is ever terminated for any reason and it's decided the scheme cannot continue to pay out benefits as planned, the following would happen:

In the event of termination of the Plan or other trigger points (e.g. announced change in legislative or accounting treatment), the Section would convert to IDC (with pensions in payment converting to income drawdown funds) such that members thereafter would have a choice between external annuitisation, transfer to another CDC plan (if available) or transfer to an IDC plan. Each member’s IDC fund would be determined as their share of the CDC assets (after meeting expenses) on the valuation basis.

I don't have a degree and found it quite easy to read, but then again I'm interested in these things.

[stephen500]

1

[BELIAL]

Fat cats take the profits while the risk is transferred to the workers.
I thought the justification for capital extracting profit was based on the fact that it assumed the risk? If the workforce are compelled to assume the risk then they should also reap the rewards?
If capital investors are freed from risk their returns should be reduced proportionately

[BELIAL]

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!

" If you don't like it you can leave. " Not sure ,but i think I might have heard that phrase somewhere before.
I'm gonna love this brexit fail reckoning . Where you gonna run to?

[Woody Guthrie]

We are of course taught to believe that a pension is a bonus, free money and something we should be grateful for but the reality is it's deferred wages, something we've already earned and as such we should be very wary how our employer chooses to invest that money and never accept a situation where we may not see that money again.

This CDC pension transfers the risk of losing some of that money to us but without much control over how that risk is managed. Despite the union's protestations that is not a good outcome.

[arnold cheshire]

We are of course taught to believe that a pension is a bonus, free money and something we should be grateful for but the reality is it's deferred wages, something we've already earned and as such we should be very wary how our employer chooses to invest that money and never accept a situation where we may not see that money again.

This CDC pension transfers the risk of losing some of that money to us but without much control over how that risk is managed. Despite the union's protestations that is not a good outcome.

I'm seriously thinking of leaving this scheme

[FAB]

We are of course taught to believe that a pension is a bonus, free money and something we should be grateful for but the reality is it's deferred wages, something we've already earned and as such we should be very wary how our employer chooses to invest that money and never accept a situation where we may not see that money again.

This CDC pension transfers the risk of losing some of that money to us but without much control over how that risk is managed. Despite the union's protestations that is not a good outcome.

I'm seriously thinking of leaving this scheme

We are not in that scheme yet. And any scheme where you get money from RM and tax and NI reductions no matter how shitty is better than no scheme at all. But certainly the days of a real decent pension scheme are now long gone. Unless your an MP!