View more on these topics

Aviva’s John Lawson: What we need to see from CDCs

The consultation on collective defined contribution schemes has recently closed, and the government must now decide whether to table enabling legislation to make such pension plans a reality.

As a reminder, CDC schemes (or at least the one that Royal Mail has in mind) have fixed contributions, a target benefit, and pool investment and mortality risks.

As many have pointed out, this is analogous to with-profits in the accumulation phase, followed by a with-profits annuity in decumulation.

Like with-profits funds, for CDC schemes we would like to see:

  • Independent oversight to ensure that all scheme members are treated fairly;
  • A process to manage any conflicts of interest that might arise between different stakeholders, for example members, employees, trade unions, the employer and trustees;
  • Effective and fair setting of target benefits.

In the early 2000s, the FSA set out two new requirements for the management of with-profits and the fair treatment of customers.

Tom Kean: CDCs look clever- that’s the problem

Firstly, firms were to develop and publish Principles and Practices of Financial Management. The PPFM set out how an insurer runs its with-profits business, how it calculates bonuses, how it tracks underlying asset share for each policyholder, and how it allocates the fund fairly between different cohorts of members, and so on.

Secondly, firms were required to establish with-profits committees, with at least half of their members made up of independents.

With-profits committees must ensure the interests of with-profits policyholders are appropriately considered. Specifically, they must consider the financial state of the fund and whether bonus rates and payouts are fair, both absolutely and between different cohorts of policyholders.

Similar solutions are now required for CDCs, otherwise conflicts of interest will result in poor outcomes, as they have in the past for such schemes in the Netherlands. Without clear governing rules and principles, and without an independent committee to ensure those rules and principles are fairly applied, history tells us the outcome for members of UK CDC schemes will be far from ideal.

Aegon: FCA should give IFAs rules for CDC transfer advice

Pressure to maintain pensions-in-payments for as long as possible, in the hope that recovery of asset values is just around the corner, has proved problematic for Dutch CDC schemes. With the benefit of hindsight, Dutch schemes continued paying the same level of benefits to retired members longer than they should have.

On their own, the trustees may make poor decisions. Some of the trustees will be employer representatives, who may have the employer’s interests most at heart, and some will be union officials and employees who will want to make sure their members’ pensions are protected at all costs.

Being new, CDC has the unique benefit of hindsight to learn from the past. The past tells us that good rules for accrual and payment of benefits, allied with strong independent oversight, are the right way to go.

John Lawson is head of financial research at Aviva

Recommended

2

How to become a financial adviser: diplomas, degrees and workplaces

Information on how to become a financial adviser is sparse. Money Marketing speaks to advisers about what the requirements really are and how best to meet them. Speaking to financial advisers and planners today, each will have a unique and varied story about how they entered the profession. There are more than a handful of pathways […]

6

Clive Waller: We must keep a close eye on vertical integration

There are a few expressions guaranteed to enrage financial planners. One of these is vertical integration. Many will argue vertical integration means inferior advice and poor products at higher cost. Is this fair? In some cases yes, but not always. Simplistically, there are three layers in the value chain: manufacture, distribution/advice and the technology in […]

6

SJP nears 4,000 adviser mark

St James’s Place has reported another increase in adviser numbers as it approaches the 4,000-mark for qualified financial planners. An update this morning shows SJP’s qualified adviser numbers increased from 3,661 in December 2017 to 3,954 last month, as the number of partner advice firms increased from 2,415 to 2,489. Chief executive Andrew Croft says: […]

2

How a little known change to top-slicing relief could affect clients

When it comes to clients with investment bonds, advisers have several techniques up their sleeves to avoid unnecessary taxation and charging. But one of these tactics has become slightly less productive for offshore bonds in certain situations thanks to a little known change to top-slicing relief by HM Revenue & Customs which went under the […]

Powerful estate planning tools ignored or forgotten by wealthy Brits

Canada Life IHT Survey 2016 Only a quarter of wealthy Brits have sought professional estate planning advice to ensure their families don’t pay more tax than required More than a quarter don’t even have a will and just one in five have gifted money Many say they do not need these tools but families would […]

Newsletter

News and expert analysis straight to your inbox

Sign up

Comments

There is one comment at the moment, we would love to hear your opinion too.

  1. So we look to the past to shape the future. Bad times.

Leave a comment

Close

Why register with Money Marketing ?

Providing trusted insight for professional advisers. Since 1985 Money Marketing has helped promote and analyse the financial adviser community in the UK and continues to be the trusted industry brand for independent insight and thought leadership.

News & analysis delivered directly to your inbox
Register today to receive our range of news alerts including daily and weekly briefings

Money Marketing Events
Be the first to hear about our industry leading conferences, awards, roundtables and more.

Research and insight
Take part in and see the results of Money Marketing's flagship investigations into industry trends.

Have your say
Only registered users can post comments. As the voice of the adviser community, our content generates robust debate. Sign up today and make your voice heard.

Register now

Having problems?

Contact us on +44 (0)20 7292 3712

Lines are open Monday to Friday 9:00am -5.00pm

Email: customerservices@moneymarketing.com