Yes, this is an interesting development, The Royal Mail are the first to avail of the new legislative framework. Watsons are the Actuaries. They say the fund will invest in "growth" assets until age 67 and then wind down to "safe" assets at age 90. This compares with a conventional I(ndividual)DC plan which they say is in growth assets until age 57 and then winds down to safe assets (annuity) at age 67. They claim in the attached note that CDC will produce 70% more return than IDC. Colm is proposing 100% growth assets throughout and claims an uplift of more than 100% which seems consistent with the Watson figures.Hi Colm
Are you familiar with the proposals to establish Collective Defined Contribution (CDC) schemes in the UK?
Essentially investment and longevity risk is pooled amongst CDC scheme members to provide a targeted (but not guaranteed) income in retirement.
Aon has produced some interesting papers on the CDC concept -
It strikes me that the CDC concept might be a logical extension of what your proposal is trying to achieve but I would be interested to hear your thoughts.Collective Defined Contribution & CDC Pension Schemes | Aon
Aon Hewitt has conducted research into the CDC which demonstrates that CDC plans can offer advantages of cost certainty to employers.www.aon.com
Actually, I think it's the opposite. CDC schemes still need actuaries to decide how much you can take as income, etc. I say that the individual contributor can make that decision. It only goes part of the way towards investing in growth assets and so loses out some of the growth potential. Most importantly, it doesn't seem to give contributors the nice warm feeling you get from having your own personal deposit account, which you can see growing year by year, and then declining as you withdraw your savings.It strikes me that the CDC concept might be a logical extension of what your proposal is trying to achieve
Duke. I'm not sure what the message is here. Can you explain please?I think Colm's proposals may be more suitable for large CDC than for AE. With a CDC the sponsoring company can set the rules just as with DB because it is paying the piper. This removes one of the difficulties of Colm's proposals in an open AE environment as they will always be in competition with alternative conventional pension plans.
One of the scenarios you discuss in your paper is when smoothed values are materially in excess of market values. On the face of it, it looks like "throwing good money after bad". But you point out that the member would be giving up €233 for every €100 they contribute so smoothed values would need to be impossibly higher than market values for that to make sense. But it could make sense for the employer and employee combined to give AE a miss for the while and contribute to an alternative conventional plan with as good as if not better than AE tax breaks. In a Group DC situation there is no such incentive for the employer to facilitate a move away from the CDC.Hi @Sarenco
Duke. I'm not sure what the message is here. Can you explain please?
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