As CDC ultimately lives or dies on the performance of its investments and as a DC pension would, broadly speaking, invest in similar assets, would that DC pot be any healthier?
Or would the average postie, using the limited investment options via the DC scheme, be able to out perform the professionals?
It also depends what an individual would do with that DC pot, which will obviously vary.
Buying an annuity is poor value, but drawdown over a shorter period may be better?
Going back to the original post and John Ralfe's personal opinion of CDC, I don't think he's correct in his assumption that the scheme would be invested 100% in equities and therefore be very erratic. That as any small time investors know, of which there's a few on this forum, would mean a lot of highs and low in line with the markets. Which over the longer term generally means higher returns due to time in the market and dividend re-investment.
But that doesn't really fit in particularly well with CDC's aim of inflationary increases each year!
So let's look at the Anticipated CDC Design booklet released in 2018. Obviously there's nothing written in stone about it, due to the legislation and regulations being done afterwards and still ongoing. But as the legal stuff has been largely done to facilitate the RM scheme, personally I can't see things changing too much.
For members up to age 67 investment will be 100% in 'return seeking assets', switching over time to 100% in 'low risk assets' for members over age 90.
The booklet says:
That to me doesn't suggest CDC will be invested in the riskiest stocks and therefore, in theory at least, shouldn't mean massive increases or decreases in members pensions, as Mr Ralfe thinks.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.
The Anticipated Design booklet also says, the rate of potential yearly increases/reductions is also set to a maximum of 5% in one go, with anything higher being applied over a 3 year period, or until investments improve.
I have my doubts about CDC, but it strikes me that Mr Ralfe hasn't really done his homework very well and is only really interested in putting his own negative opinions across.
As for complete termination of CDC, the booklet says:
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.