The target growth rate of the CDC pension is only CPI+1%, with the most recent CPI figures being 1.8%, obviously making a total of 2.8%!
In my opinion, that isn't a particularly high or unachievable rate!
History tells us that over the longer term equity investment is a good way of making your money grow, as this example
In practice there is always going to be short term volatility when it's possible to see your money rise or fall in quite large amounts/percentages. But any pension investment is generally for a long time, and the longer you're invested, the more likely you are to make healthy returns.
Personally I consider myself to be a fairly passive investor, mainly via funds, but have made substantial gains over the approximately 20 years I've been doing it. Therefore I think the idea that our CDC pensions are going to go down year on year, or even be reduced to £0(as some seem to think), is way off the mark.
There will be a valuation once a year to decide if our pensions rise, fall or stay the same, and that will be based on investment performance both actual and expected, as well as any changes in life expectancy, etc.
Ultimately it'll be up to the pension trustees and their advisors to make those decisions.
The only way RM could affect things is if they decide/have to pay in a lower percentage of pay, meaning the scheme has to provide a lower accrual rate going forward. Which depending on how the company performs over the coming years, is always a possibility. But that is true of any type of pension – it could also apply to our wages!!!
The whole point of CDC, is there will always be enough money in the pot to pay for our pensions(even if RM go bust), how ever much they're going to be worth.
DB is obviously the the preferred option and we're going to be the guinea pigs with CDC, which doesn't exactly fill me with joy. But the only other viable alternative was an individual DC scheme which would just offer a pot of money, with the choice of buying a lower income with an annuity, or drawdown.
And if they took the 2nd option, how many would spend it all within a few years?
At least CDC is attempting to provide something closer to that preferred option!
* The NRA with CDC is 67. The CWU's original WinRS proposal had an NRA of state pension age, meaning anyone who's currently in their late 40's or younger would have to wait until at least 68.