Would UK savers benefit from Dutch-style Collective Definded Pension schemes?
A succinct review of the strength and the weaknesses of Collective Defined Contribution pension schemes with reference to the UK environment, benchmarking against international experience.
Collective Defined Contribution (CDC) pension schemes are a variant of collective pension plans present in many countries and especially common in the Netherlands. CDC schemes are based on the pooled management of the retirement savings of all members, thereby incorporating inter-generational risk-sharing features. Employers are not subject to investment and longevity risks as these are transferred to plan members collectively.
The paper An analysis of the Dutch-style pension plans proposed by UK policy-makers discusses policy related to the proposed introduction of CDC schemes to the UK. By means of a simulation-based study, it compares the performance of CDC schemes vis-à-vis typical Defined Contribution schemes under different investment strategies. The study finds that CDC schemes may provide retirees with a higher income replacement rate on average, together with less uncertainty.
The accepted version of An analysis of the Dutch-style pension plans proposed by UK policy-makers is available for download at City Research Online.