Editorial: Addressing Royal Mail workers in London last week, pensions and financial inclusion minister Guy Opperman was keen to justify what is effectively a legislative carve-out on collective defined contribution.
One in every 190 workers in the UK is employed by the Royal Mail, he said, adding that he fully expects other employers to follow suit. Fair enough – after all, it was not long ago that mail workers were threatening to strike.
In fact, the Department for Work and Pensions’ own consultation concedes that few employers will be interested in setting up CDC.
But perhaps this focus on employers is a red herring. The as-yet unproven claims about CDC’s outperformance of DC aside, its mechanics minimise the risk of poverty in retirement, and make it an ideal fit for trade unions, as our feature this week explores.
Funding levels may be rising, but all is not well in the defined benefit world. It is therefore not too big a stretch to imagine a situation where a DB employer tries to close its scheme and replace it with DC, but is asked instead to set up a CDC scheme by a union.
One can imagine that the Pensions Regulator’s Brighton office let out a collective groan at the news of another type of pension to watch over. But given the potential demand for CDC, it is imperative that regulation surrounding the schemes is robust, taking proactive steps to clamp down on any over-promising or intergenerational unfairness – this will require industry input.
Of course, the key issue for savers today is not really the type of structure they save into; as Barnett Waddingham’s Mark Futcher is fond of telling people, DC should really stand for “decent contributions”.
However effective or otherwise CDC is as a collective investment and insurance solution, it will not deliver adequate retirement outcomes for members if contributions are made at 8 per cent of combined earnings.
It is perfectly reasonable for the DWP to invest its legislative time solving what is in essence a trade dispute rather than a pensions burning platform, but it must not hold up its work on CDC as an excuse for ignoring wider questions of adequacy in the UK.
Angus Peters is associate editor at Pensions Expert. You can follow him on Twitter @peters_angus or the team @pensions_expert.
