Adrian Boulding: Dealing with clients who have decumulation CDC

16th September 2022

The Department for Work and Pensions (DWP) is getting ready for Decumulation CDC (Collective Defined Contribution). They asked a question about it in their 14th June 2022 consultation paper entitled: Helping Savers Understand Their Pension Choices.

The DWP asked, ‘How could CDCs work in practice in the Defined Contribution decumulation market?’

To a large extent, they probably already know the answer. After all, single employer CDC schemes started on 1st August, and will be extended next year in a similar guise to multi-employer schemes and commercial master trusts. Whilst what is launched so far is whole of life CDC, surely decumulation CDC is just the second half of those schemes?

Decumulation CDC

Consider a worker who joins the sponsoring employer late in life, at say age 65, with just 12 months to go until their State Pension age. They will only accrue a few pounds of pension savings in the coming year’s employment. Most of their pension savings are likely to be in DC, in one form or another, from previous employments.

Now suppose they ask to transfer those old DC plans into their new employer’s CDC scheme and then promptly retire. For them, this supposedly whole of life CDC scheme is virtually a decumulation-only CDC.

A key feature of these schemes is the strong trustee governance which should ensure fairness of treatment between all members.

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