UK Parliament Extends CDC Pension Inquiry Deadline

A UK parliamentary committee has extended its deadline until Jan. 31 for evidence in an inquiry concerning a controversial new form of pension called collective defined contribution pensions.

Collective Defined Contribution (CDC) pension plans are a type of retirement saving plan that is common in the Netherlands, Canada, and Denmark, but have only recently been allowed in the UK. They were authorized by primary legislation in 2015, but regulations to make it possible have not yet been enacted. Also known as a form of “defined ambition” plan, CDCs differ from defined benefit plans in that the employee is not promised a certain retirement income, but instead has a target amount the plan will pay out based on a long-term, mixed-risk investment plan.

CDCs aim to pay out an adequate level of index-linked pension for life, but do not offer a contractual guarantee. They have the scope to redefine the benefits they offer under circumstances such as adverse economic conditions. CDCs differ from defined contribution plans in that they do not produce an individual pension pot, which a worker then has to decide how best to use for retirement, but instead invest their savings in a larger “collective” pot, and then provide an income during retirement.

The Work and Pensions Select Committee has called for evidence from any interested parties concerning the following CDC-related questions:

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Would CDC deliver tangible benefits to savers compared with other models?
How would a continental-style collective approach work alongside individual freedom and choice?
Does this risk creating extra complexity and confusion? Would savers understand and trust the income ‘ambition’ offered by CDC?
Could seriously underfunded DB pension plans be resolved by changing their pension contract to CDC, along Dutch lines?
How would this be regulated and how would the loss of DB pension promises to scheme members be addressed?
How would CDCs be regulated?
Is there appetite among employers and the UK pension industry to deliver CDC?
Would CDC funds have a clearer view towards investing for the long term?

“What the Select Committee is aiming for is to retain some of the best features of company schemes in a different age when employers are no longer willing or able to sustain the burden of final salary promises to employees, who could club together and pool the risk themselves,” said Frank Field, committee chair, in a statement.

Tags: Canada, CDC, collective defined contribution pensions, Denmark, Netherlands, UK parliament

The Endowment Index calculated by Nasdaq OMX gained 17.6% on a total return basis for the year ended Dec. 31, 2017. This is below the S&P 500, which increased 21.8% during the same period, but above the average investment returns for university endowments, which rose 13.2% for the year ended June 30, according to Bloomberg.

The Index began the year at 1,072.11, and never once moved below that level, according to Nasdaq OMX. It said the index’s greatest retracement was just 1.64%, which occurred during the first week of August. It is the highest return for the index since 2009, when it earned 30.53% after losing 34.42% the previous year. The index rose 7.19% last year, and its three-, five-, and 10-year annualized returns are 6.87%, 8.20%, and 4.45%, respectively.

All but one of the index’s 19 components posted gains in 2017. The top earners were natural resources-metals and mining, which surged 37.1%, emerging markets equity (up 36.8%), emerging markets equity-China (up 31.8%), natural resources-timber (up 29.8%), international real estate (up 26.5%), and equity-international developed (up 26.4%). Managed futures posted the only decline among index constituents, sliding 3.2% during the course of the year.

On an attribution basis, private equity, equity-domestic, and equity-international developed accounted for over half (56%) of the Index’s 2017 gains.

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The Endowment Index, which is co-created by Endowment Wealth Management, Inc. and ETF Model Solutions, uses an objective, rules-based construction methodology based on the portfolio allocations of more than 800 educational institutions managing more than $500 billion in total assets. Each of the 19 sub-indexes that comprise the index are investable, and contained within those sub-indexes are more than 30,000 underlying securities. The current target allocation is 35% equity, 53% alternatives, 8% fixed income, and 4% liquidity.

The index, comprised of investable components, is used for portfolio comparison, investment analysis, and research and benchmarking purposes. It is used by fiduciaries, including trustees, portfolio managers, consultants, and advisors to endowments, foundations, trusts, pension plans, and individual investors.

Tags: Endowment Index, gains, Nasdaq OMX