As I got closer, he stepped out of the shadows. I could see a scowl on his face.
So I put my head down and, in the hope of looking busy, peered down at the emails on my phone. It was then I spotted a press release from the Department for Work and Pensions announcing the launch of collective defined contribution pension schemes.
It chilled my blood. (The guy from the shadows walked on by, presumably wondering why I had suddenly turned as white as a ghost).
Pooled funds, smoothed returns, actuarial discretion – I feel like we have been here before. It all smells a bit ‘with-profits-y’.
The argument behind CDC schemes is that we need to find a third way when it comes to pensions. Defined benefit has become expensive and employers are trying their hardest to walk away from the promises they made.
DC is flexible, but the risk is entirely on the saver. In some quarters that is unacceptable.
Pooled funds, smoothed returns, actuarial discretion – I feel like we have been here before.The middle ground is CDC. It is the pension scheme for socialists – no wonder the heavily unionised Royal Mail wants to try it for size. Savers pay in, the money is pooled together, and the pension you get is smoothed out through the ups and downs of the market. It is shared risk.
Now, I hate to sound like a broken record, but this places the running of investments back into the hands of actuaries. And as we have seen with the debacle over with-profits payouts and Equitable Life, this is a terrible idea.
There is a certain rhetoric about with-profits that seems to have developed in the past few years. Whenever you bring them up, someone says: “They weren’t bad products.”
Only they were. In my opinion, they were opaque, expensive, mismanaged,poorly understood and widelymis-sold.
But my problems with CDC are wider than simply being run by actuaries. I am not sure how they sit in the world of pension freedoms.
If someone wants to take their pot as a lump sum, how is the withdrawal value going to be calculated? The same applies for anyone who ends up in a duff fund and wants to transfer elsewhere.
And what if the fund has a period of poor performance and everyone in it needs to take a haircut? It is likely that those in retirement will have to take a reduction in income – and that is a penalty many would find very hard to stomach.
The Communication Workers Union is currently championing CDC as a great victory for its collective bargaining power, following the consultation to axe the DB scheme at Royal Mail.
Certainly, Royal Mail is big enough to run a trial for CDC. Recommending a pension scheme for your members could be a very unwise decision.
When markets start to turn sour (and they will), posties realise the scheme is not as flexible as they would like, and retirees’ incomes are chopped, who will savers be screaming at about mis-selling?
Property squeeze
We are in the midst of a fundamental shift in the buy-to-let market.
Analysis from the Sunday Times reveals that the total tax take from four different Treasury changes on buy-to-let will cost landlords £12bn. Because of this, the small-time landlord, and second-home owner, are becoming a dying breed. In that respect the government’s tax raids have done what was intended.
In its place we are seeing the rise of the portfolio landlord: the professional buy-to-letter who serves a very important role in our economy. Let’s hope they can ride out the tax grab.
But where the tax raids have failed is in killing property sales. The rental market is being squeezed by a lack of supply, and at the same time rents are going up, hammering the very people the tax raids were supposed to help.
This is another example of the government’s backward approach to housing policy.
Unsporting behaviour
The latest ruse by insurers to get hold of personal data: fitness trackers.
Unsurprisingly, life insurers think monitoring customers’ every move, indeed every heartbeat, is the future of the business. It is like telematics for the human body.
I have seen little evidence so far that good behaviour with a fitness tracker results in lower premiums. But you do get some good perks, such as a free Starbucks or cinema tickets.
“It’s an evidence-driven programme that uses technology to incentivise behaviour,” says chief executive of insurer Vitality, Neville Koopowitz.
No it is not. It is just plain creepy.
James Coney is money editor of the Sunday Times
