The Department for Work and Pensions (DWP) has confirmed plans to consult on draft regulations to extend CDC provision to whole-life multi-employer schemes, including master trusts, in the autumn of this year.

Following on from its consultation on CDC earlier this year, the government said that it continues to believe that CDC will have an “integral role” in the future of pensions in the UK, suggesting that the wider economy can also benefit from CDC by combining investment and longevity risk.

However, the DWP made some changes to the proposals, agreeing that an amendment is needed to clarify its policy intention in the scenario where a multi-annual reduction (where the impact of the benefit reduction is smoothed over three years) is initiated following poor investment performance and there is a subsequent positive bounce back in investment.

Although the government's consultation did not specifically inquire about valuation and adjustment processes, some respondents said that a change to the existing valuation and adjustment process was needed.

Given this, the government confirmed that this amendment will be included in the draft regulations that it consult on later this year to ensure the regulations work in the way we intend and to avoid any inadvertent consequences for members.

In addition to this, the government confirmed its intention to amend the relevant regulations to make clear that, during the wind-up of a CDC scheme, the accrued rights of the dependants and survivors of members or survivors of dependents can be transferred to a flexi-access drawdown arrangement.

More broadly, the DWP said that it remains committed to moving forward with creating provision for CDC decumulation only products, suggesting that CDC decumulation could help provide members of traditional individual DC schemes with the option to turn their pension pot into an income in a more cost-effective way and which, on average, should provide a better outcome.

As part of this, the DWP said that using responses to this consultation, and continued industry engagement, it will explore how these products could operate in the best interests of members, and without unwarranted impacts on other aspects of the pensions framework, with this work to progress alongside the production of the legislative framework for whole-life multi-employer CDC schemes.

Commenting at an industry event, Pensions Minister, Laura Trott, stated: "The government is committed to exploring development and the new regime to regulate new types of CDC for multiple employers, and decumulation.

"It's important that we set CDC up in the right way, and we want to take the time to get it right."

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