Hillary Feld, Royal Mail, Paul Lewis discussed on Money Box
To me remarkable from Gentlemen. Thank you very much for talking to us. Royal Mail Now in private hands is closing its valuable pension scheme. That promise to pension based on years, worked in salary, earned, eighty eight thousand workers, a members, all that instead agreed with the Communication Workers Union to replace it with a new kind of pension, individual contributions, all go into one big pension. Paul not individually tacked on the scheme, pays members an income for life out of it inevitably as a new at Kuna to scrape at CDC or collective defined contribution scheme with me as Hillary sought cheese sold. She the founder of first at to Ariel, the pensions consultancy, who worked with the unions on this new idea that he result, Shall we start? Can you just described to us the two kinds of existing pension scheme and how this one's different? Yes. So as you said to the defined benefit scheme as a promise of a pension at retirements, and if things go badly in pension scheme, for example, investment returns don't come. So employee has to meet the additional cost makeup, not deficits, and we know that many employers enough. Really willing to do that anymore with defined contribution scheme that many people will now be an press had been altered wrote in it. That gives you an individual parts of Monet's like a saving scheme. No guarantees. You have a potted when he retirement. If you want to convert into an income, you have to either by an annuity or Jordan against that point. Right. So the the existing kinds them one of which called the ploy a take thrift. The other one, the employee thankful Riskin has to make a lot of decisions that many of them feel they can't. How does yours fit into that? So with the collective DC scheme, The defined contribution nature of it is at both the employees and the employer pace set contribution in that doesn't change. So Investment returns, move F-4 against you that's reflected in a change in the members benefits So lists a Shad collectively with the members. There's no risk on the employer, but nothing guaranteed Stay with us because also Here is Hugh Nolan. He's president of the Society of pension professional Hunan. Is this new CD? The answer to all the firm's who has scrapping these good defined benefit schemes will certainly it's a nice compromise between the two extremes, where, as you say, the employer-employee take all the risks themselves. Uh, it was something that should be told about a number of years. The question is really whether ship assailed the budget mean by the ship has sale resumes Asia. You realize how Yeah, so he's got two thousand six there in a three and a half thousand a open pension schemes on the defined benefit will final-salary basis in the can the private sector. That fell to seven hundred by last year. So eighty eight percent of schemes have been closed over that period. So do you feel be no demand for this? If if if I mean, obviously it gained be introduced, we had with fit for the Royal Mail's can be nagging entre. There are only one point three million people left in these games. I compared to three point nine million ten years ago. So the demand his trip has lessened dramatically Henry finding any demand for this when people headed. I think it's rim to say. A cut to DC just as an alternative to defined benefit. In fact, we would see it as as very much part of the solution to lots of people who are building up at defined contribution pots, perhaps in all twin Roman schemes and the two reasons why a collective defined contribution schemes will provide a much better pension on average than an individual DC co. Their scheme is because it is more efficient because it's done collectively. When you pay your contributions in the skin doesn't have to pay to invest those contributions. At the same time, it's painted disinvest contributions to pay my pension because monies fungible those amounts confer conflicts straight through in. So there's a much lower level of charges. The other point is that with a collective defined contribution, scheme members are sharing longevity risk. If you're sixty five and you got an individual DC Poyton you joined downfull Mets. You probably need to see him the economic by forty years to give yourself a really low probability that you and I said Monday. But if you're saving with. Into the papal you will, on average as that of that group of collective people lift perhaps twenty years. So you can see why you can get a much better pension from that kind of a collective scheme Yoged that works in theory, but unfortunately people Shirley don't like that idea. So people when the boat in New Jersey's worked on the basis, The share that risk if they die, though they felt they were being ripped off. So leaving aside, whether it's a good thing or not, And you you make the case very well Hillary there. He's rather sceptical. You caught actually do it now. Can you because you need a change in the lower that, Right? We don't need a change in legislation and we recognize that there are some significant constraint some on parliamentary time, but will lead believed his possible to make these changes to add tweaks to the existing defined contribution legislation. We think we can do that through secondary legislation. We get to some very positive noises from government shadow. Pensions team has been very supportive, solitary hopeful that we can get that legislative change. Other the challenge with particular bra. The general, the moment, There's a lot of things to be sorted out, both in pensions and elsewhere, and find the time to make the detail changes needed for this will be a challenge. It would be nice to have a a third way of solving pension difficulties. I just wonder about the practicalities, the swim letters, and have to see whether that happens. But I bring you back to this scheme itself because in this scheme, Royal Mail is putting in a total of fifteen point. Six percent of pay workers will put in six percent. That's twenty one point six percent at pay getting in. Of course, that'll be better than the average defined contribution schemes where it's about nine percent on now after all to enrollment. It's coming down July four percent isn't isn't the level of contributions the key here. Yes, fundamentally what you put, whose what you're going to get out. Collective DC might generate a little bit extra out of that by having a better investment strategy. But fundamental, You have to pay the right amount of money and to get a decent pension and Harry. What's your experience of schemes where they do closedown defined benefit schemes? Do they put that sort of the mounting or far less generally far less? But the point you make is really important because of an employer is spending that kind of money on the pension scheme. It wants to make sure we spend in that when he officiant lay and with it with existing options of individual DC, it's really not getting it a good man quit spoke. It won't spend that much on fuel or a post fountains without making sure is Kennedy really efficient vehicle and that's what we need to provide yesterday at the moment. Companies of Yogi into Autry enrollment comporting what what they call one pesetas actually slightly less than us a little really going to care about all that. All they it. It's the scheme the put a lot in that will care. I mean huge You think that Autry enrollment is going to have to raise the contract nearly going up statutorily but beyond what they're paying too tight, a decent pension, your show the Rajaguru increased weight percentl him I will do well for low of people. Through would lodge sumo money going in the other, a number of ideas being floated parlor can be achieved in practice, fundamental loose, entourage, And people is good idea. Never going to be 21-percent ISIS pink, Hillary feld. You know, Thanks very much for talking to us, And that's just about. 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