Interview: First Actuarial’s Hilary Salt on her CDC ‘legacy’

Hilary Salt will be drawing her own pension before collective defined contribution (CDC) schemes – her “most important legacy”, in her own words – are in full swing.

The First Actuarial co-founder, who will retire this month, was a key player in negotiations for the UK’s first CDC scheme.

These schemes aim to bridge the defined contribution (DC) and defined benefit (DB) systems, providing an income for life but with no guaranteed value, thus reducing the likelihood that pensioners will run out of money while removing the burden for employers to fund unpredictable costs. Additionally, contributions are pooled in a collective fund, allowing exposure to high-growth assets even after retirement.

However, the Royal Mail Collective Pension Plan – poised to be the UK’s first CDC scheme – has yet to be finalised after years of regulatory change to make space for it in the pensions landscape.

“It would have been nicer to have moved more quickly,” Salt told Pensions Expert.

“It looks like, slowly but surely, we’re getting there. It feels pretty inevitable that we will. I certainly feel that I’m leaving it in capable hands.” 

Four decades of change in pensions

Salt’s pensions career has spanned more than four decades, having begun training as an actuary in 1981 at Refuge Assurance. In 2004, she became one of nine co-founders of First Actuarial.

Over those 40 years, DB schemes have all but disappeared as an option for new employees. Their absence has left most workers with DC pensions, which Salt said usually weren’t fit for purpose – making for an industry that asks individuals to adapt to the product, rather than the other way around.

“Most people pay into a savings pot and then have to find a way to make that into a pension. People are being caught in the headlights,” Salt said.

“There’s a lot of debate and discussion about getting people to engage with their pension, but no one ever says: ‘I need to engage with my car.’ I don’t need to engage with my car, I just need it to work.

“Similarly, I don’t think people need to engage with their pension, they just need it to work. It’s up to us to find something that works for them, just like it’s up to car manufacturers to produce cars that work for us.”

CDC’s potential to bridge the gap

Salt said she sees potential for CDC to close the generational gap in pensions, providing younger members with a greater chance of retiring comfortably.

“We are absolutely convinced that CDC is a way in which we can provide dignity in retirement to ordinary working people, without exposing their employers to legislative developments that make it very difficult to run DB,” Salt said.

“For the past couple of decades, individual DC with inadequate contributions has meant that, for most workers, getting a decent income in retirement was out of reach. CDC seems to us to be the solution.”

However, take-up has stalled as the Royal Mail scheme continues to trickle through the regulatory framework. Salt attributed this lag to the decline of unions and, relatedly, limited incentives for employers to offer high-quality pensions.

“Trade unions’ power has been reduced a lot and not necessarily in a good way,” Salt said.

“Royal Mail is one of the rare workplaces where there are high levels of trade union membership in one union [the Communication Workers Union], where there’s almost a requirement for the employer and union to work collectively to find solutions.”

Yet, Salt said a more difficult recruitment environment may force employers to embrace CDC.

“Employers provide a high-quality pension for very good commercial reasons, because they want to recruit the right people, retain the right people, get people to return after career breaks and retire at the right time,” Salt explained.

“When I talk to employers about why they want to run a decent pension scheme, it’s for those four reasons. They have never changed.”

What has changed is that, while recruiting and retaining people was not difficult for many decades, it has become more so.

“Lots of employers now realise that they have problems recruiting and retaining the right people, and perhaps a decent pension scheme will allow them to do that,” Salt said.  

Salt encouraged regulation to streamline CDC and make it more attractive.

“It would still be a failure if the only CDC scheme we get is Royal Mail,” she said.

“We would like this to be something that opens the floodgates and means many other employers go down this route.”

Further reading

Pensions minister supports auto-enrolment expansion, CDC, dashboards (29 February 2024)

Mansion House reforms build momentum behind CDC (25 August 2023)

CDC legislation is ‘on the way’ (11 July 2023)