TUC 23 Collective Defined Contributions (CDC) Pensions fringe – What are CDC pensions and how will they improve people’s lives?

Better late than never. This is my contribution to the panel fringe on Collective Defined Contribution (CDC) pensions. Many thanks to Hilary from First Actuarial for organising and chairing. Also to Andy and Derek for their excellent contributions. It was the best attended pension fringe that I have attended in a while and lots of great questions and challenges.  Previous panel speakers how explained how CDC works so I concentrated more on the trade union angle. 

"I am a UNISON delegate at Congress but here today as a trade union pension activist, appointed as a employee LGPS Pension board member and who also represents local government unions on a LGPS collective investment pool. I also wear other pension hats.

To be very clear I do not think that CDC is something to be preferred above Defined Benefit (DB) schemes but there are many sectors and workers in this country who have never had the opportunity to DB and are now in dreadful Defined Contribution (DC) provision.

As a relatively young person, I became interested in work related pension provision for 2 main reasons. First, was when my father confided in me that me, he had discovered, far too late to do much about it, that the State Pension would not provide enough money for him to properly retire. He was not  unintelligent or uninformed, but he had just assumed that the state pension and a collection of small pension pots he had accumulated over the years would provide him with enough cash to retire, not in luxury but in dignity. He had worked since he was 15 and for many years was a skilled manual worker.

This lack of money meant he had to work part-time for the rest of his life. Not through choice, but to pay the bills.

The 2nd reason was when I started working as a Council housing management officer in the East End of London in the early 1990s. While there was and still is, widespread poverty in this area, it was the poverty of so many older residents, which struck me the most.

So many of them lived hand to mouth, with no holidays, basic furniture, cold homes and little or no money for presents fort their  grandchildren. I used to get into work early and would see every Monday morning, pensioners queuing patiently outside the Roman Road Post Office to pick up their pensions, hours before it opened. Rain or shine. Obviously, they had run out of money, hopefully only the Sunday before. Yet the vast majority of them had worked hard all their lives.

Now a lot has changed since then regarding pensions, some good, some bad, some ok

The Labour introduction of Pension credit was transformational. State pension provision is much better and auto enrolment (AE) , while imperfect, is a welcome addition to workplace pensions.

But we have pretty much lost the battle for defined benefit schemes in the private sector while the public sector DB seems to be in a far more healthier position. But decent DB provision in the UK was always a minority sport. I represent 80,000 UNISON members on its NEC, who work for housing associations or charities throughout the UK and Northern Ireland.

Occupational pension provision in the sector is at best hit and miss but pretty rubbish in parts particular in the care sector, where many employers only pay the AE 3% of salaries.

Defined contributions (DC) schemes, and to be frank, pensions in general, confuse workers. They are thought to be expensive, complex, fragmented, volatile and risky. This is true.

• DC schemes do not deliver a pension; they are small investment pots for each member.
• All of the asset management fees and transactions are extracted from their investment pot.
• All the risk of the market value of assets falling is with the member.

CDC may well appeal to employers who want to offer good pensions to their workforce where they have previously closed their DB scheme. The prospect of a regular and relatively reliable income in retirement will be welcomed by UNISON members who are now in a DC scheme.

DC Pension pots are still small, charges relatively high, and there is a general lack of trust in personal financial services.

So, what is the alternative and why CDC?

Many years ago, I remember visiting Netherlands with UNISON and being impressed talking to Dutch trade unionists about their CDC schemes.  CDC is also found in many other countries.

They were very proud to their scheme and while being prepared to be ruthless in protecting it, believe that it has delivered for their members. Due to scale, they believe it cuts costs, improves investment performance, and manages volatility. They also believe that there was improved governance, in particular for Labour rights.

As trade unionists we should believe that as a rule, "Collective action rather than individual is best".  

One more important reason for trade unionists to consider CDC is that it is an opportunity for unions to involved actively in the design and operation of these schemes. To be frank, there are many other countries where trade union density and influence is greater than in ours. Trade unions in these countries tend to provide more services than we do in the UK.

I think there is a connection and believe that CDC is an opportunity to provide better pensions, make trade unions even more relevant to members and a potential recruitment prospect"

COLLECTIVE PENSIONS: IMPROVING INCOME AFTER WORK - TUC Fringe 23

 

Next tuesday 12 September 2023 at 12.45 - 2pm I will be a panel speaker at a TUC fringe at Congress in Liverpool sponsored by First Actuarial LLP. 

I am at TUC as a UNISON NEC delegate but will be speaking at this fringe as a trade union pension activist/LGPS Board member etc. 

Check out some of my previous posts on Collective Defined Contribution schemes (CDC)

https://www.johnslabourblog.org/2022/01/royal-mail-cdc-pensions-could.html

https://www.johnslabourblog.org/2019/06/going-dutch-collective-defined.html

https://www.johnslabourblog.org/2023/03/tuc-pensions-conference-2023-pensions.html

"Many members of trade unions no longer have access to good quality defined benefit pensions. Instead they are auto-enrolled into individual defined contribution schemes often with very low employer contributions which are unlikely to provide dignity in retirement. Legislation now allows a new type of scheme: collective defined contribution. These schemes have the potential to really improve the income workers receive in retirement. This session will look at how these schemes work, where they might be appropriate and how trade unions can get them onto their bargaining agenda.

Speakers: Andy O’Regan, Employers & Strategic Partnerships Director (TPT), John Gray, Derek Benstead – First Actuarial LLP

Chair: Hilary Salt – First Actuarial LLP

Refreshments provided

Venue: Room 13

(check out al l TUC fringes and agendas here https://mailchi.mp/2c9743ce8691/welcome-to-tuc-congress-2022-final-agenda-436884?e=ca2047d5d4

UNISON urges caution over new pension scheme (collective defined contribution)

 

UNISON is 100% right to be careful about this new "CDC" (Collective Defined Contribution Scheme) however, it should not be seen as a replacement for decent existing pension schemes but a realistic option for the so many workers in the UK, who have rotten, inadequate and completely unsecure pension provision. 

"Government’s new collective defined contribution pension scheme could help some public service workers, but shouldn’t erode the pensions of others.

UNISON is urging caution after this week’s announcement by the Department for Work and Pensions (DWP) that it is launching a new UK pension model.

The UK government seeks to introduce collective defined contribution schemes as an alternative to the UK’s current two primary pension scheme models – defined contribution and defined benefit.

The new scheme is a result of the Pensions Schemes Act that was passed in 2021.

UNISON sees defined benefit schemes as vital in providing decent pensions for many public service workers. However, millions of public service workers – including UNISON members – are not eligible to join such schemes and are dependent on defined contributions schemes instead.

The union has negotiated with employers in these sectors and has successfully brought about a number of relatively high-quality defined contributions schemes for members in recent years.

UNISON head of pensions Glyn Jenkins said that caution was needed when employers consider any changes to existing pension arrangements. “These new pension arrangements must not erode current provision,” he commented.

“UNISON supports improving member outcomes through the introduction of collective defined contribution for members in defined contribution schemes, but the new schemes should not be used to replace viable defined benefit schemes.”

Mr Jenkins pointed out that, on the basis of the union’s experience, many defined contribution schemes will not provide an adequate income for their members.

This is for a number of reasons, including, “woefully inadequate levels of contributions – especially from the employers – and charges on investments.”

He continued: “Collective defined contribution schemes should improve the position for members in defined contributions schemes. Even though such schemes do not guarantee benefit levels, they do set a target benefit level that may be reached.”

Posted on
4 August 2022

Your future pension plan? "Keep calm and work till you drop"

 

This is a motion submitted by my trade union branch to UNISON Greater London Regional Council. Unless we get decent pension provision for all workers, you will indeed have to "work till you drop". UNISON must review and investigate what do do to tackle the future pension poverty of millions of workers. 

"Motion 2 Received from the Housing Associations Branch

Future Pension Provision for Public Service Workers not eligible for Defined Benefit Scheme

This Regional Council/ National Delegate Conference recognises the vital importance of “Defined Benefit” (DB) schemes in providing decent pensions for so many public service workers.

However, many millions of public service workers (including hundreds of thousands of UNISON Members) are not eligible to join such schemes and are instead dependent on Defined Contributions (DC) schemes.

Many (not all) of these DC schemes are grossly inadequate, badly run and expensive with little or no involvement by workers in their Capital stewardship.

UNISON has negotiated with employers in these sectors and have successfully brought about a number of relatively high quality DC schemes for members in recent years.

It is likely that in the near future the Government will allow a new type of Pension scheme to operate in the UK. It is called a “Collective Defined Contribution” (CDC) which is a commonplace scheme elsewhere in Europe and in some cases operates with the assistance and direct involvement of trade unions.

The CWU union strongly supports the establishment of a CDC scheme for Royal Mail.

This Regional Council/National Delegate Conferences requests:-

1. The Regional Council officers/NEC to carry out a review to collate information and identify best practice with regard to current pension provision for workers not eligible for DB schemes. This can also be used for collective bargaining purposes

2. Examine our members attitudes to pensions and identify barriers as well as means to encourage improved take up of existing pension provision

3. Evaluate possible alternatives to current pension provision including CDC and Sectorial DB

4. Report back to Regional Council/NDC in 2023 with recommendations.

(If this motion is passed and then selected as a regional motion to NDC then the wording will be changed appropriately)

For consideration as a regional motion to National Delegate Conference 2022

"Royal Mail CDC pensions ‘could outperform DB as well as DC"

 

Recently I completed a research project into Pension Provision for Housing Association staff. In the project I mentioned the pros and cons on the new CDC (Collective Defined Contribution) schemes that have very recently been allowed to operate in the UK.  I came across this video and article by CWU union who are very supportive of CDC for Royal Mail. 

"Latest actuarial modelling suggests the new Royal Mail CDC/DB pensions scheme could provide returns some 70 per cent higher than current Defined Contribution schemes and CDC schemes could even outperform Defined Benefit, says our DGSP Terry Pullinger in his video update to members today (7/10/20).

Work done by Wills Towers Watson Actuaries suggests “that the CDC scheme, on average, would produce 70 per cent more for an individual than a DC scheme and 40 per cent more, currently, than a DB scheme,” Terry explains, adding: “Now that is massive news and will certainly shake up the pension world.”

Defined benefit pensions schemes are, he reminds us, still considered “the ‘gold standard with guaranteed outcomes,” but adds that Wills Towers Watson’s performance modelling, “which has gone on ever since we created this scheme, even through the Covid period” suggests that CDC schemes “would on average actually produce a better benefit.”

Today sees the Pension Schemes Bill return to the House of Commons for its Second Reading, after which it moves into its final Stages and, providing it progresses, will then receive Royal Assent and pass into law.

Opposition to the Bill is not expected, although MPs will, no doubt, be looking carefully at the legislation and ensuring that it meets all of the usual stringent tests for new legislation.

If the progress of the Bill continues as currently scheduled – and it will become the Pension Schemes Act once it has received Her Majesty’s formal approval – Terry anticipates that the Royal Mail CDC Scheme would likely be introduced into the company “at some point next year” and “bring all our members into one ‘wage in retirement scheme.”

CWU members are warmly praised by our DGSP, who thanks them for the tremendous support” they gave to the union’s 2017 Four Pillars campaign, which was so powerful that it forced Royal Mail and the CWU into designing a new and unique on-going agreement on pensions that still offered a wage in retirement, and that led to this ground-breaking development.

Back in 2017, Royal Mail workers in the company’s DB scheme were faced with the prospect of being transferred into the DC scheme. DC schemes were once seen as the answer to reducing DB provision, but time had suggested that the outcomes for DC members would be insufficient to sustain dignity in retirement.

“So we were insistent that there must be another way,” explains Terry, “and we refused to accept that the only answer was a lump sum paid out when you retire, which wasn’t producing the best results and was insufficient to sustain people through their old age.”

Eventually, as a key aspect of the Four Pillars agreement, both the CWU and the business agreed to find a better solution, he continues: “We both got on the same page to develop the art of the possible.

“How to create such a pension scheme.”

With help and expert assistance from First Actuarial, who have aways been a great support to the CWU, and other unions, as well as Wills Towers Watson and others who support Royal Mail, the principle of a CDC scheme – a collective, shared-risk scheme – was agreed and a specific, Royal Mail CDC scheme was designed – and robustly modelled.

The scheme would replicate the old DB scheme in design, producing a wage in retirement generated via CDC and a guaranteed lump sum.

Although CDC in different forms is used in other countries, such as Canada, Denmark and the Netherlands, no scheme of its type has previously existed in the UK and so legislation was required.

“I know that it’s through the collective strength of CWU members that we’ve managed to achieve that,” insists Terry, who makes the further point that, as well as being beneficial to Royal Mail workers, the precedent set could also be “a game changer for many working people.”

For workers in other companies, “this could make a massive difference to their lives and certainly to what their retirement might look like,” he suggests, adding: “Hopefully it will encourage other employers to move away from DC and into this type of scheme, CDC, so that people can get back to having a Wage in Retirement and dignity in retirement.”

The CWU does not support any sense that CDC should replace DB schemes and believes that DB schemes are the ‘gold standard’ and will remain so until time suggests otherwise.

However, for CWU members, the modelling is excellent news that supports our view that we have found a way to give our members a genuine pensions that produces a wage in retirement.

After describing the current situation as “a big moment, a massive moment,” Terry gave a “massive thank you to all of our members who backed this union unanimously,” and that this is clear evidence that we only get what we deserve if we negotiate from a position of strength.

“It’s been a long time waiting, but we’re getting closer and closer,” he added.