The collective DC proposals within the pension schemes bill have come under attack from speakers at the Corporate Adviser Summit as unfair on the young, opaque and tarnished by with-profits.
Aviva managing director workplace pensions Brian Gabriel, speaking in a panel debate at the CA Summit, dismissed CDC as “with-profits on speed,” saying its lack of transparency and pooling structure means it was a product looking for a market. Gabriel pointed out that the youth arms of all three political parties in the Netherlands had pledged to get rid of CDC.
Barnett Waddingham partner Mark Futcher, warned that unless CDC was mandatory as in the Netherlands, “it could be a Ponzi system.” He said it added cost and complexity to the system and needed innovation in the middle market.
Bernard Casey, principal research fellow, Institute for Employment Research, University of Warwick, slammed CDC in the Netherlands as a smoothing system which would collapse if young people could leave it. Casey, who speaks Dutch and has spent time in the Netherland, said the Dutch were worried about what they had got, there was no fixed indexation in law and there had been very substantial cuts in real and nominal terms to benefits at certain points. “The only thing that keeps this system going, is that everyone has to join it and that young people can’t get out. Be very careful about embracing CDC, very careful,” he said. But Casey also warned that in Australia most providers expected their drawdown products to run out and for people to fall back on means-tested benefits in their 80s.
Association of Consulting Actuaries chairman David Fairs the said he did not expect the UK to set up a CDC scheme and that the design of investment savings in future would look more like the bucket structure in the US. But he said the CDC framework could promise products that could offer a set income for seven years which would then have to be recast, so that during the active part of accumulation, there would be a market value adjuster if the assets were taken out before that recasting, for example if the investor wanted to exercise the freedom and choice flexibilities.
LCP partnerBob Scott said he regarded the CDC discussion as a sign that politicians do not think that collective structures here are in good shape.