Guest comment: The road to CDC

At two pivotal moments in UK pensions history, the launch of personal pensions in 1988, and pension freedoms in 2015, the focus was on individual choice and the removal of constraints.

Each event created a mass of confused savers, and a boost for scammers, epitomised by a replay at Port Talbot of the pit head misselling a generation earlier.

In the interim, DB schemes withered and today’s employees are increasingly dependent on far less well-funded money purchase pensions.

People are realising that their pot of money often looks inadequate to top up the state pension to a tolerable retirement income and that the challenge of drawdown will likely be too much for all but the wealthy and well-advised.

That’s why pension provision is swinging back from the extreme of individualism, towards a more central position.

Collective defined contribution (CDC) arrangements benefit from economies of scale and pooling of risk, which crucially continues after contributions cease to be paid, ie in ‘decumulation’.

In future Royal Mail will be seen as the harbinger, not some isolated outlier on the pensions landscape.

Those who bewail the potential for intergenerational unfairness might recognise that this was endemic in final salary schemes.

Cross-subsidisation is not all bad. It contributes to solidarity and societal cohesion.

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