Collective defined contribution schemes need an investment approach focused on members’ actual pension experience rather than traditional measures of portfolio risk and return, LCP has argued.
Collective defined contribution (CDC) schemes should start with the outcomes they want to deliver, then work backwards to the portfolio behaviour needed to support them, the consultancy outlined in a new report.
CDC outcomes are not fixed in advance, as they are with defined benefit (DB), but, equally, they are not determined solely by each member’s own investment experience, as in an individual DC scheme. Instead, investment returns are shared collectively and feed through into future pension increases or, where needed, reductions.
The consultancy said this nuance changes how risk and success should be assessed. Rather than focusing on short-term market movements or volatility, CDC schemes should judge investment strategy by its impact on expected pensions, downside outcomes, pension stability, inflation resilience and the likelihood of reductions.
Steven Taylor, partner and head of CDC at LCP, said: “CDC investment strategy is not about avoiding risk; it is about how investment risk is translated into pension outcomes over time. That requires a shift in mindset and a more innovative approach to investment design.”
LCP said the level of investment risk a CDC scheme can sustain depends on both its assets and membership profile. Schemes with younger demographics can typically absorb market shocks over longer timeframes, while more mature schemes may place greater emphasis on stability and downside protection.
Laun Middleton, partner at LCP, added that CDC needed “a broader investment toolkit than traditional pension investing”, combining long-term growth with resilience through inflation shocks, market stress and changing economic regimes.
The Pensions Regulator’s (TPR) draft CDC rulebook was laid before parliament in April, with trustees potentially on the hook for “unclear or misleading” communications in relation to collective schemes.
TPR has said it is already in discussions with “several possible market entrants” ahead of the CDC rulebook coming into force in October. TPT Retirement Solutions has already declared its intention to launch a CDC scheme.
Outlook 2026: Making collective DC a reality
As part of our Outlook 2026 series, Pensions Expert asked CDC experts for their views on what 2026 holds for the nascent CDC sector, what challenges are still to be met, and how proponents should go about communicating this new model to savers. Read the full article.
