Modelling Collective Defined Contribution Schemes: Executive Summary

The Department for Work and Pensions (DWP) sponsored the PPI to develop a Collective Defined Contribution (CDC) model to look at a potential CDC scheme under different assumptions to determine whether CDC produces better results compared to DC and in what circumstances. 

In the short term, with no initial pre-funding (which is likely to be the case for a new scheme), the benefits of the modelled CDC scheme are similar to that of a DC scheme with an aggressive drawdown (7% per year). However, the modelled CDC scheme would be less likely to run out, and the outcomes are still higher than a DC scheme with an annuity. 

In the long term, once the scheme is mature and the scheme population is stable, CDC produces better outcomes (a replacement rate of between 27% and 30%) than DC (a replacement rate of between 12% and 21%, assuming a 10% contribution rate). The PPI modelled CDC scheme also requires a relatively low contribution rate to maintain these outcomes.

To download the results, please click here.

To download the Briefing Notes on the Dutch and Canadian CDC systems and experiences, please click here and here.