CDC creates pools of money that pay “aspirational” pensions.  Aspiration – the word that was dropped in favour of “ambition” by Steven Webb, reappears in the consultation that arrived yesterday, This is it…

In whole-life CDC schemes, member and employer contributions are pooled in a collective fund from which an aspired-to pension income for life is drawn.

It is a gentle nod to where CDC came from (2014 Defined Ambition work). We are not here dealing with certainty but what those who share risk aspire to.

Although they frustrate me, the DWP have been working more than 10 years on getting this right and the latest consultation brings together all their thinking. It isn’t much of a consultation, more a bible for the faithful .

You can access it here.

Whole of life now, at retirement transfer version tomorrow.

What was presented to parliament was the whole of life CDC plan known by the DWP as UMES (UMES stands for Unconnected Multiple Employer Schemes)

We are asked to consider a transfer in scheme as something rather different. It is a Retirement CDC scheme.

Retirement CDC schemes would differ from their whole-life counterparts as they would see individual DC member pots pooled in a collective fund at retirement, enabling individuals who have saved in DC pensions, to access a lifelong CDC income in retirement.

These Retirement Schemes are designed for commercial master trusts who need a default decumulation fund by 2027.

Potential providers have expressed interest in offering Retirement CDC, particularly in the context of the forthcoming duties on trustees or managers to provide default pension benefit solutions under the Guided Retirement provisions in the Pension Schemes Bill 2025

The Roadmap looks a little tight for Retirement CDC to help. Is there any way this stuff will be on the books by 2027 when their Guided Retirement provisions need to be in place?

The consultation concludes that Retirement CDC will be aligned (as near as possible) to the aim of workplace pensions to offer a default

Following the outcome of this consultation, our aim would be to have enabling provisions for Retirement CDC schemes in place as close as possible to the point at which schemes begin to comply with their Guided Retirement duties.

In any interim period, Retirement CDC could form part of a scheme’s pension benefits strategy as something to pursue as an alternative to the default pension plan for members retiring before Retirement CDC schemes are available.

My conclusion is that any master trust looking to “go CDC” for decumulation (my phrase and my bolds ) will be sped through and that we will be seeing Retirement CDCs as near 2027 as can be.

We can expect UMES to also apply to take in money from DC schemes at retirement and pay CDC income immediately and this too looks likely to be available around when an UMES can get authorised. The first schemes can apply from 31st July 2026 and it’s expected that authorisation will take a maximum of 6 months. We could see UMES open early in 2027 with them getting a Retirement CDC authorisation as soon as possible.

If you are a DC scheme you can choose either to have your own Retirement CDC or partner with an UMES to get members a CDC pension rather than another decumulation default (flex and fix for instance)

It will ,it seems,  be possible to offer a Retirement CDC standing solo and this will not be able to take regular contributions and be a workplace accumulation scheme for auto-enrolment.

Retirement CDC schemes will contain pensioner members – there will be no regular or ongoing contributions from members or employers, and no accrual

This is the type of scheme I was working on which would have offered a defined benefit with a capital buffer. That didn’t happen – it was made pretty clear to me that it would be swept away by the Tsunami that CDC is expected to be.

This is not for single employers, this is for multiple unconnected companies

We intend for Retirement CDC schemes to be a form of unconnected multiple-employer scheme (UMES). We do not believe that there is appetite for a Retirement single or connected employer scheme, and to allow for this eventuality would require further primary legislation.

and it is going to be separate from whole of life schemes because it is only for lump sum contributions – from transfers and most of these will come from workplace pensions. They can come from workplace pensions whether GPP, master trust or single company trust but they have only two destinations

We propose that Retirement CDC schemes must be established within occupational pension schemes as a section of a Master Trust (1) or UMES.(2)

The saver building benefits in UMES will have a different benefit trajectory based on a lifetime of smoothing.  This is generally considered a better way to smooth.

We would not anticipate that UMES members would wish to transfer to a Retirement CDC scheme section. However, there may be a tension between the terms offered to new and existing members, for example, where an UMES is targeting lower or higher benefit increases than the Retirement CDC scheme section.

The CDC may well adopt something called a cohort approach which is designed to provide a much less smoothed benefit for people in it. “Cohorting” allows for out and under-performance of the fund to be captured within a group of joiners , joining in a set period – the cohort.

Those joining in a new cohort are treated as separate and there is no transfer of the good or bad experience to the new group. But this is why Retirement CDC is kept separate from whole of life (even though a UMES can have a Retirement section of the CDC). It may sound difficult but having worked on this same problem for two years, I think the DWP are right about this.

The whole of life and at retirement versions of CDC will not only be seen as two separate schemes, they very likely will give different pension experiences to members of each. Some members will have pensions from both sections and they will notice. That’s why these have to be run as separate, – whole of life and at retirement.