There appears to be a surprisingly high number of idealists working in pensions these days.
The seemingly irresistible move to defined contribution schemes faces a new challenge from collective DC arrangements, a clever wheeze whereby people get better outcomes using the radical tactic of co-operating with each other.
Perhaps we should fight for the best pension system possible rather than settling for the easy option
There is no doubt from a technical perspective that pooling risk and smoothing benefits in a CDC scheme could substantially enhance retirement income for participants. With lower contribution rates now the norm, a boost of 15-30 per cent, depending on which modelling you believe, would be extremely welcome.
CDC would be particularly attractive as an alternative to drawdown or annuities in retirement, with the possibility of trading the guaranteed status for higher pensions without having to run excessive personal risk throughout later life. The idealists are singing the praises of this middle way of pension provision, and so they should.
Not everyone is completely convinced though. There are many objections put forward, but the true believers are not to be deterred and match each argument with a passionate defence, which is often utterly compelling.
What stands in the way of CDC?
I think some of the challenges are genuinely difficult, such as the risk of future regulatory intervention like we saw in defined benefit schemes. Most worthwhile goals take a bit of effort to achieve though, so perhaps we should fight for the best pension system possible rather than settling for the easy option.
I could therefore get quite excited about the agreement by Royal Mail and the Communications Workers Union to lobby for a CDC framework, except that I just do not think it will ever happen.
Select committee hearing shows deep divide over CDC
Collective defined contribution could dramatically uplift the final values enjoyed by UK pension savers, a parliamentary select committee has heard, but some experts still doubt its compatibility with pension freedoms and performance in market crashes.
There is no realistic prospect of any parliamentary time being available over the next few years, and I simply cannot see the government making CDC a top legislative priority with everything else going on.
I am also painfully aware that there were almost 3,500 open DB schemes in the private sector in 2006, but that this had dropped to 700 last year. There are still 1.3m active members of DB schemes, but that is only a third of the figure from a decade ago.
That is a huge number of schemes and members that have already moved to DC schemes, and there is no evidence of employers lining up to reverse those decisions and find a new middle ground. I am absolutely convinced that the time for CDC has come. Sadly I suspect it has gone again already.
Hugh Nolan is president of the Society of Pension Professionals and director of consultancy Spence & Partners
