WEBVTT 00:00:00.360 --> 00:00:03.580 There's a new pension in town, and I think that 00:00:03.580 --> 00:00:06.540 this is the biggest change to the way we fund 00:00:06.540 --> 00:00:09.919 our retirement in decades. This is a big one. 00:00:10.000 --> 00:00:13.900 It's called the collective defined contribution 00:00:13.900 --> 00:00:17.899 pension. And it's different to any other pension 00:00:17.899 --> 00:00:20.620 that you may be familiar with, unless you're 00:00:20.620 --> 00:00:24.120 a postal worker, but more about that later. So 00:00:24.120 --> 00:00:29.039 if we consider the three current types of pension, 00:00:29.449 --> 00:00:32.689 that I talked about in the UK. Then we have the 00:00:32.689 --> 00:00:36.289 state pension. And this is a benefit that's paid 00:00:36.289 --> 00:00:40.009 to those over the age of 67. And it's paid from 00:00:40.009 --> 00:00:42.810 the taxes that the government raises each year 00:00:42.810 --> 00:00:45.609 from people who are still working in the UK. 00:00:45.890 --> 00:00:49.689 Now, there's no pot of money collected from which 00:00:49.689 --> 00:00:52.890 the pensions are to be paid. To be entitled to 00:00:52.890 --> 00:00:55.390 it, you just need to have worked and paid national 00:00:55.390 --> 00:00:58.630 insurance in the UK during your working life. 00:00:59.159 --> 00:01:01.960 Generally, the longer that you've been working, 00:01:02.100 --> 00:01:05.659 the more you're entitled to up to a limit, which 00:01:05.659 --> 00:01:10.019 is near £12 ,000 per year. It wouldn't have mattered 00:01:10.019 --> 00:01:12.260 if when you were working that you'd earned £2 00:01:12.260 --> 00:01:16.760 million a year or £15 ,000 per year. Your pension 00:01:16.760 --> 00:01:19.900 would be exactly the same, as long as you've 00:01:19.900 --> 00:01:23.480 been working for the same amount of time. Now, 00:01:23.519 --> 00:01:26.819 the other two pensions are different. they do 00:01:26.819 --> 00:01:30.680 rely on how much you earned and how much you 00:01:30.680 --> 00:01:34.900 contributed each month. So these will determine 00:01:34.900 --> 00:01:38.560 whether, for example, you can retire early or 00:01:38.560 --> 00:01:42.480 retire with a large pension that will fund a 00:01:42.480 --> 00:01:46.219 much more lavish lifestyle in retirement. So 00:01:46.219 --> 00:01:51.739 they're called DB and DC pensions. full names, 00:01:51.840 --> 00:01:55.400 defined benefit and defined contribution pensions. 00:01:55.500 --> 00:01:59.260 Now, if you go back 30 years in the UK, you would 00:01:59.260 --> 00:02:03.420 see that DB pensions were really popular and 00:02:03.420 --> 00:02:07.299 lots of big companies offered them to their employees. 00:02:07.659 --> 00:02:11.099 But they're much less common now and they're 00:02:11.099 --> 00:02:13.699 mainly only available to those working in the 00:02:13.699 --> 00:02:17.560 public sector. Now, in short, a DB pension is 00:02:17.560 --> 00:02:21.240 a promise made by your employer to pay you a 00:02:21.240 --> 00:02:24.500 set pension that depends on how much you earned 00:02:24.500 --> 00:02:28.759 and how long you worked for them. It was a fixed 00:02:28.759 --> 00:02:32.000 pension that would usually get every month until 00:02:32.000 --> 00:02:35.699 you died. And when you died, it stopped, other 00:02:35.699 --> 00:02:38.680 than whether you had a widow's pension. What 00:02:38.680 --> 00:02:41.900 a defined contribution pension or a DC pension 00:02:41.900 --> 00:02:45.310 is, is very different. And this is money being 00:02:45.310 --> 00:02:48.210 collected off you every month, being invested 00:02:48.210 --> 00:02:51.870 for you. Your employer then chips into the pot 00:02:51.870 --> 00:02:55.629 as well. And then when you retire, the money's 00:02:55.629 --> 00:03:00.050 yours. Now, how much you take each month out 00:03:00.050 --> 00:03:03.150 of that pot of money is kind of up to you as 00:03:03.150 --> 00:03:05.819 well, really. You could if you wanted to. go 00:03:05.819 --> 00:03:08.180 and blow it all in the first year of retirement. 00:03:08.520 --> 00:03:10.620 Or you could try and stretch it out till you 00:03:10.620 --> 00:03:13.580 die. Or even further, you could stretch it out 00:03:13.580 --> 00:03:16.919 and then after you've died, have some left, which 00:03:16.919 --> 00:03:19.699 you could then pass on to your family, subject 00:03:19.699 --> 00:03:22.400 to inheritance tax, which I'm not going to cover 00:03:22.400 --> 00:03:25.960 here. Now, your employer has not made you a promise 00:03:25.960 --> 00:03:29.219 on how much you get. And if the way it was invested 00:03:29.219 --> 00:03:31.860 meant that you didn't get as much as you had 00:03:31.860 --> 00:03:34.740 hoped for, then your employer's off the hook. 00:03:35.530 --> 00:03:38.250 They don't need to top it up. They've made no 00:03:38.250 --> 00:03:44.129 promises. So what's this new pension in town? 00:03:44.449 --> 00:03:48.849 What's it all about? It's the CDC pension. Now 00:03:48.849 --> 00:03:53.409 it works by combining features of both the defined 00:03:53.409 --> 00:03:56.949 benefits and the defined contribution pensions. 00:03:57.469 --> 00:04:01.050 So both the employer and the employees contribute 00:04:01.050 --> 00:04:06.860 into a single pooled fund. A pot of money that's 00:04:06.860 --> 00:04:10.479 invested collectively provides what they call 00:04:10.479 --> 00:04:14.219 a target pension income in retirement. Now, unlike 00:04:14.219 --> 00:04:17.220 a traditional defined contribution, the risk 00:04:17.220 --> 00:04:20.319 is then shared across all the members in that 00:04:20.319 --> 00:04:23.800 pool rather than just the individual savers. 00:04:23.980 --> 00:04:28.139 So if the fund performs well, then pensions can 00:04:28.139 --> 00:04:31.360 go up. If it underperforms, then pensions may 00:04:31.360 --> 00:04:37.629 decrease. This model aims to offer a more sustainable 00:04:37.629 --> 00:04:42.610 lifetime income than individual DC pots. But 00:04:42.610 --> 00:04:47.069 it avoids the employer guarantee of the DB schemes, 00:04:47.449 --> 00:04:49.589 which made them so unpopular in the first place. 00:04:49.970 --> 00:04:53.089 So how does this CDC pension work? Well, from 00:04:53.089 --> 00:04:55.250 a contribution perspective, both your employee 00:04:55.250 --> 00:04:58.129 and your employees contribute to this collective 00:04:58.129 --> 00:05:02.009 fund. And as I said, the investment then is pulled 00:05:02.009 --> 00:05:04.870 together. and invested together by professional 00:05:04.870 --> 00:05:08.870 managers to seek higher returns than individual 00:05:08.870 --> 00:05:15.110 schemes. But also the risk is pooled then. But 00:05:15.110 --> 00:05:18.490 because the money's not still payable after you 00:05:18.490 --> 00:05:22.189 die, like it would be in a DC, that money goes 00:05:22.189 --> 00:05:26.490 back into the pot. So if less people live longer 00:05:26.490 --> 00:05:30.129 in your pot, then you may receive more pension. 00:05:30.329 --> 00:05:33.769 Also, It's not guaranteed like a traditional 00:05:33.769 --> 00:05:37.569 DB pension. There's no onus on the employer to 00:05:37.569 --> 00:05:41.290 top it up. Now, the amount the pension paid can 00:05:41.290 --> 00:05:45.189 be adjusted year on year, depending on the performance 00:05:45.189 --> 00:05:50.230 levels of the fund. But this... pooling of these 00:05:50.230 --> 00:05:52.870 resources can minimize operating costs as well 00:05:52.870 --> 00:05:55.430 because it's a bigger pool therefore there's 00:05:55.430 --> 00:05:58.769 less operating costs as well now employers as 00:05:58.769 --> 00:06:01.110 well have much more predictable contribution 00:06:01.110 --> 00:06:05.449 costs similar to a dc plan where there's no guarantees 00:06:05.449 --> 00:06:08.730 and they really do not have to guarantee that 00:06:08.730 --> 00:06:11.350 final pension amount in the traditional defined 00:06:11.350 --> 00:06:14.750 contribution your retirement income depends solely 00:06:15.529 --> 00:06:18.990 on your and your employer contributions and then 00:06:18.990 --> 00:06:21.509 the investment performance of that individual 00:06:21.509 --> 00:06:26.189 pot of money but in the cdc plan the risk and 00:06:26.189 --> 00:06:28.589 rewards aren't like that they're shared across 00:06:28.589 --> 00:06:33.509 larger groups now this will steady things out 00:06:33.509 --> 00:06:36.889 in terms of risk and give you a much more predictable 00:06:36.889 --> 00:06:40.899 income Now, if you also compare the CDC against 00:06:40.899 --> 00:06:42.579 the defined benefit, what's different there? 00:06:42.639 --> 00:06:45.620 Well, the defined benefit promises a specific 00:06:45.620 --> 00:06:48.480 income, and that'll be based on the salary that 00:06:48.480 --> 00:06:50.519 you earned and the length of time you were with 00:06:50.519 --> 00:06:53.879 an employer, and it's guaranteed by the employer. 00:06:54.019 --> 00:06:57.240 Now, this puts the investment and the longevity 00:06:57.240 --> 00:07:00.360 risk, as in how long you live, back onto the 00:07:00.360 --> 00:07:04.439 employer, where the CDC scheme don't have this 00:07:04.439 --> 00:07:08.470 employer guarantee. But they can be more sustainable 00:07:08.470 --> 00:07:11.970 and cost effective for the employer while still 00:07:11.970 --> 00:07:15.250 aiming for a similar kind of lifetime income 00:07:15.250 --> 00:07:18.110 for the employees with the big difference being 00:07:18.110 --> 00:07:20.930 there that when you die, the pension dies with 00:07:20.930 --> 00:07:26.829 you. So I mentioned that this is coming in and 00:07:26.829 --> 00:07:30.189 the Postal Service in the UK has had it for a 00:07:30.189 --> 00:07:33.209 while now. It's been really well received and 00:07:33.209 --> 00:07:36.319 actually promoted by the... postal workers unions 00:07:36.319 --> 00:07:39.759 like the communication workers units the cwu 00:07:39.759 --> 00:07:44.399 the cwu was actually instrumental in developing 00:07:44.399 --> 00:07:48.480 and campaigning for this cdc scheme at royal 00:07:48.480 --> 00:07:53.000 mail and for them it was a crucial outcome of 00:07:53.000 --> 00:07:57.579 negotiations with the company the cwu's main 00:07:57.579 --> 00:08:01.430 goal was to secure this wage and retirement for 00:08:01.430 --> 00:08:03.730 their members and this kind of income for life 00:08:03.730 --> 00:08:07.610 which they felt was missing from standard defined 00:08:07.610 --> 00:08:10.329 contributions. As I say with a standard defined 00:08:10.329 --> 00:08:13.310 contribution you can pretty much take the pension 00:08:13.310 --> 00:08:15.449 and blow it in the first year should you choose 00:08:15.449 --> 00:08:18.769 to do that. Now the CDC scheme is designed to 00:08:18.769 --> 00:08:21.889 provide this target but not guaranteed income 00:08:21.889 --> 00:08:24.550 and you know generally it's thought that that's 00:08:24.550 --> 00:08:29.069 better than a DC. Now the union strongly prefer 00:08:29.069 --> 00:08:32.110 the CDC over the individual defined contribution 00:08:32.110 --> 00:08:35.289 pension schemes that the Royal Mail had initially 00:08:35.289 --> 00:08:39.149 proposed to employers after they closed their 00:08:39.149 --> 00:08:43.950 traditional DB type scheme. They believe that 00:08:43.950 --> 00:08:48.289 the CDC offered better expected outcomes, a more 00:08:48.289 --> 00:08:52.190 predictable income and also this pooling of risks 00:08:52.190 --> 00:08:55.789 and this longevity risk as in The more people 00:08:55.789 --> 00:09:00.029 die, the more everyone else gets. There's also 00:09:00.029 --> 00:09:03.690 a higher member approval. Reports from the CWU 00:09:03.690 --> 00:09:06.909 indicate that the agreement, which included the 00:09:06.909 --> 00:09:11.110 CDC scheme, was incredibly well received by the 00:09:11.110 --> 00:09:14.970 postal workers, with a very high percentage voting 00:09:14.970 --> 00:09:18.929 in favour of the deal. So the CDC scheme is seen 00:09:18.929 --> 00:09:23.429 as this middle way between the old style, expensive 00:09:23.429 --> 00:09:28.289 to run, DB schemes which give a guaranteed pension 00:09:28.289 --> 00:09:32.490 income and the lower risk but uncertain outcome 00:09:32.490 --> 00:09:37.769 of the defined contribution schemes it offers 00:09:37.769 --> 00:09:42.649 a target benefit not a guaranteed benefit but 00:09:42.649 --> 00:09:46.230 it fixes the cost for the employer so in summary 00:09:46.230 --> 00:09:50.090 the postal workers as represented by their CWU 00:09:50.090 --> 00:09:54.340 view the CDC pension scheme generally as significant 00:09:54.340 --> 00:09:58.559 and positive step that provides a better path 00:09:58.559 --> 00:10:01.440 to retirement security than maybe a standard 00:10:01.440 --> 00:10:05.059 DC scheme, especially given the closure of their 00:10:05.059 --> 00:10:10.759 original traditional DB scheme. So they are headed 00:10:10.759 --> 00:10:14.720 our way. A lot of employers are looking at CDC 00:10:14.720 --> 00:10:18.129 schemes now. What do you think? Let me know in 00:10:18.129 --> 00:10:20.889 the comments whether you think you'd prefer to 00:10:20.889 --> 00:10:24.529 have a CDC scheme at your employer. See you next 00:10:24.529 --> 00:10:24.710 time.