Find an alternative to DC – or else – Law & Regulation

Employers and their workers need an alternative to defined contribution (DC) if people are to live independent lives with dignity in retirement, according to former general secretary of the Communication Workers Union (CWU), Terry Pullinger.

Pullinger was speaking of his involvement with the development of Royal Mail’s recently launched Collective Defined Contribution (CDC) scheme at a Pension Playpen online event recently when he said that far more needs to be done across all of workplace pensions to help people to understand why saving for their future is so important.

“There is nowhere near enough education,” said Pullinger, until you are close to retirement, by which time your income has fallen dramatically. People need to be prepared for this shock.

“From a societal point of view, there will be a stampede of pensioner poverty if something isn’t done,” said Pullinger. “Just because they are living longer, doesn’t mean they can do the work still.”   

Postal workers have been in a DC scheme since 2008, but they face the uncertainty of not knowing how best to access income in retirement, said the former union leader.

Adequacy is vital. Pullinger said: “You can tick a box with auto-enrolment, but it should be about getting people decent pensions that will protect them in old age.

“We need an alternative to DC as people are not saving enough to retire with dignity and sufficient income in retirement.”

Pullinger admitted that unions generally consider defined benefit (DB) schemes to be the gold standard of pension provision, but he believes CDC will improve understanding among workers, because the need to do more than issue statements that no-one understands or even reads, drives better communications.

When asked if Royal Mail workers understood the CDC scheme being implemented, Pullinger said they understood the possibility that their pension could go down in retirement.

“However, our modelling showed that our fund would only have gone down twice in the past – both times during the Great Depression.”

The possibility that the budget may impose national insurance payments on employer contributions on 30 October worried Pullinger, who said he’d rather see that money paid into a worker’s pension.

But he was otherwise upbeat that the launch of the Royal Mail scheme would lead to others following suit. 

“It may be a bit nanny state,” added Pullinger, “but it will benefit society as a whole.

“The conversation is now far more positive than it was, but the crusade doesn’t stop here.”