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CDCs

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CDCs

#178608

Postby XFool » November 6th, 2018, 6:30 pm

Interesting! Government has given approval to go ahead with Collective Defined Contribution (CDC) pension schemes. Sounds very similar to something I suggested a few years ago on TMF.

Independent

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Re: CDCs

#178723

Postby ursaminortaur » November 7th, 2018, 10:48 am

XFool wrote:Interesting! Government has given approval to go ahead with Collective Defined Contribution (CDC) pension schemes. Sounds very similar to something I suggested a few years ago on TMF.

Independent


Unfortunately the article doesn't provide much detail as to how these CDC pension schemes will work though the link in the article to an article from 2014 when this first appeared in a Queen's speech
https://www.independent.co.uk/money/spend-save/five-questions-on-cdc-pension-schemes-9504710.html
mentions that the Dutch from whom the concept has been borrowed have complained about them providing poor returns and also mentions the problems that the UK has had with the similar with-profits pension schemes.

The schemes have plenty of critics. "They allow one generation of member to receive more pension, in the hope that future investment returns will ultimately justify the decision – but that has significant risks involved," said Alan Higham of Fidelity. Tom McPhail of Hargreaves Lansdown says there used to be collectivised pensions in the UK, but they were called with-profits funds: "Investors now shun these investments because of their complexity, lack of transparency, and poor management," he says.

Ah, so maybe they aren't the answer?

Pensions Minister Steve Webb is a big fan, which is why they were included in this week's Queen Speech. But it's worth bearing in mind what happened in Holland, where the schemes have become unpopular as poor investment returns have led to fewer annual increases and to pension scheme benefits being cut.

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Re: CDCs

#178744

Postby XFool » November 7th, 2018, 11:48 am

ursaminortaur wrote:
XFool wrote:Interesting! Government has given approval to go ahead with Collective Defined Contribution (CDC) pension schemes. Sounds very similar to something I suggested a few years ago on TMF.

Independent


Unfortunately the article doesn't provide much detail as to how these CDC pension schemes will work though the link in the article to an article from 2014 when this first appeared in a Queen's speech
https://www.independent.co.uk/money/spend-save/five-questions-on-cdc-pension-schemes-9504710.html
mentions that the Dutch from whom the concept has been borrowed have complained about them providing poor returns and also mentions the problems that the UK has had with the similar with-profits pension schemes.

The schemes have plenty of critics. "They allow one generation of member to receive more pension, in the hope that future investment returns will ultimately justify the decision – but that has significant risks involved," said Alan Higham of Fidelity. Tom McPhail of Hargreaves Lansdown says there used to be collectivised pensions in the UK, but they were called with-profits funds: "Investors now shun these investments because of their complexity, lack of transparency, and poor management," he says.

Are we hearing the sounds of vested interests? Surely not!

ursaminortaur wrote:Ah, so maybe they aren't the answer?

So if a large low cost, spread risk (investment and mortality risk) pension fund isn't "the answer", then perhaps when it comes to pensions, there isn't "an answer"? If so, the best advice to all those DIY pensioners should be: "Watch out!"

ursaminortaur wrote:Pensions Minister Steve Webb is a big fan, which is why they were included in this week's Queen Speech. But it's worth bearing in mind what happened in Holland, where the schemes have become unpopular as poor investment returns have led to fewer annual increases and to pension scheme benefits being cut.

And that cannot possibly happen with existing SIPPs and DC schemes, that's guaranteed! ;)

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Re: CDCs

#178758

Postby ursaminortaur » November 7th, 2018, 12:37 pm

XFool wrote:
ursaminortaur wrote:
XFool wrote:Interesting! Government has given approval to go ahead with Collective Defined Contribution (CDC) pension schemes. Sounds very similar to something I suggested a few years ago on TMF.

Independent


Unfortunately the article doesn't provide much detail as to how these CDC pension schemes will work though the link in the article to an article from 2014 when this first appeared in a Queen's speech
https://www.independent.co.uk/money/spend-save/five-questions-on-cdc-pension-schemes-9504710.html
mentions that the Dutch from whom the concept has been borrowed have complained about them providing poor returns and also mentions the problems that the UK has had with the similar with-profits pension schemes.

The schemes have plenty of critics. "They allow one generation of member to receive more pension, in the hope that future investment returns will ultimately justify the decision – but that has significant risks involved," said Alan Higham of Fidelity. Tom McPhail of Hargreaves Lansdown says there used to be collectivised pensions in the UK, but they were called with-profits funds: "Investors now shun these investments because of their complexity, lack of transparency, and poor management," he says.

Are we hearing the sounds of vested interests? Surely not!

ursaminortaur wrote:Ah, so maybe they aren't the answer?

So if a large low cost, spread risk (investment and mortality risk) pension fund isn't "the answer", then perhaps when it comes to pensions, there isn't "an answer"? If so, the best advice to all those DIY pensioners should be: "Watch out!"

ursaminortaur wrote:Pensions Minister Steve Webb is a big fan, which is why they were included in this week's Queen Speech. But it's worth bearing in mind what happened in Holland, where the schemes have become unpopular as poor investment returns have led to fewer annual increases and to pension scheme benefits being cut.

And that cannot possibly happen with existing SIPPs and DC schemes, that's guaranteed! ;)


I'm just saying that we need more details as to how these proposed schemes are supposed to work and that I wouldn't be a big fan if they were as opaque as with-profits schemes were.

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Re: CDCs

#178768

Postby Alaric » November 7th, 2018, 1:03 pm

ursaminortaur wrote:I'm just saying that we need more details as to how these proposed schemes are supposed to work and that I wouldn't be a big fan if they were as opaque as with-profits schemes were.


You could handle the distribution side as if it was an Investment Trust. In other words maintain a revenue account and a capital account and make distributions out of the revenue account. That could be done without change of legislation. Just set up an Investment Trust owned by Company Pension Schemes. Other than what's intrinsic in the accounting method, that doesn't guarantee security of income.


More complications would be introduced if longevity insurance was introduced in some manner. A simple way of doing this would be that the shares were forfeited on death and their value distributed amongst the living. It's be no means easy to devise a system to do this that's both fair and seen to be fair. There's past use of With Profit funds, but the experience of Equitable with their "With profits annuity" isn't confidence boosting.

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Re: CDCs

#178877

Postby XFool » November 7th, 2018, 10:15 pm

Alaric wrote:More complications would be introduced if longevity insurance was introduced in some manner.

Addressing this matter is my main reason for thinking such schemes are necessary. After all, this was addressed in the past via DB pensions or alternatively via annuities. Now? Under "Pension Freedom"? Just poke and hope...

Alaric wrote:A simple way of doing this would be that the shares were forfeited on death and their value distributed amongst the living.

As in a classic DB pension scheme or an annuity.

Alaric wrote:It's be no means easy to devise a system to do this that's both fair and seen to be fair. There's past use of With Profit funds, but the experience of Equitable with their "With profits annuity" isn't confidence boosting.

Not sure of all the facts here, but was that not due to a variety of factors, including perhaps, running different kinds of "funds" for different people out of a central fund? Keep It Simple!


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