Plans to consult on draft regulations to extend collective defined contribution (CDC) provision to whole-life multi-employer schemes, including master trusts, have been delayed until early 2024.

The Department for Work and Pensions’ (DWP) response to its consultation on decumulation found that industry views on CDC were divided, with even those who supported the emergence of CDC in the decumulation market, acknowledging that to facilitate it, the government will need robust legislation.

The DWP found that there is also need for a framework that would enable savers to not only compare CDC schemes but also to compare to annuity or drawdown.

In particular, the DWP found that some respondents suggested that the cost of offering a CDC in decumulation would be higher than any of the other currently available products.

Furthermore, whilst one respondent was able to quantify costs estimated that selecting a preferred drawdown provider costs could cost around £15,000 to £20,000, while setting up a CDC is "likely to cost in the millions".

In addition to this, several respondents suggested that the breakeven point for CDC in decumulation is likely be higher than any other product, while others mentioned that the cost is dependent on several factors including scheme size and ongoing running costs.

However, the DWP said that it "strongly believes" the measures outlined previously in this consultation response are, at this time, the most appropriate to secure a strong later life for occupational pension members.

It also argued that a clear timescale for legislation would give potential providers confidence that any work on CDC decumulation solutions is likely to be a worthwhile investment.

There is also some evidence of potential improvements, as its report analysing the impact of private pension measures on member outcomes found that CDC decumulation is likely to produce higher outcomes than annuities.

From a range of sources, DWP estimated the decumulation phase of CDCs may offer a 20 per cent uplift on top of an annuity income level.

"We have carefully considered the role of CDCs in the pensions landscape of the future and see them as a potential future model for pensions," the response stated.

"Schemes could consider a CDC option in decumulation for their members consistent with the market developing, which could be a default offer to their members.

"We therefore intend to continue to work with the pensions industry to explore how to establish a CDC decumulation model that works in the UK."

Speaking today at the Professional Pensions Investment Conference, Pensions Minister, Paul Maynard, confirmed that while the government was still looking to consult on extending CDC, this would be later than the previously expected Autumn 2023 timeline.

"The government is committed to working with industry to facilitate their expansion and development on offering CDC offers for many more savers.

"The regulatory framework is already in place and we intend to consult on draft regulations early next year to extend this to whole life and multi-employer schemes, including master trusts."

However, the DWP has also launched a call for evidence to explore whether a lifetime provider model would improve outcomes for savers, as well as how it can grow the CDC market, and whether there are synergies between the two.

This call for evidence confirmed that progress is already underway despite recent delays.

It stated: "We have made significant progress on the legislation for both single employer and multi-employer CDC schemes to date, with the first single employer scheme authorised for operation likely to go live in early 2024 and regulations for unconnected multi-employer schemes are expected to follow later in 2024 allowing those schemes to seek authorisation at some point following that."

---