Transparent risk-sharing and a simpler benefit structure mean UK Collective Defined Contribution (CDC) schemes could be better placed to succeed than earlier international models, particularly those in the Netherlands.
LCP has highlighted several strengths in the UK approach in a new analysis, arguing that the Dutch system is often misunderstood. It says that it is sometimes seen as evidence that collective pensions “failed”, but the analysis suggests it offers useful lessons in how these schemes can evolve.
According to LCP, the key takeaway is that success depends on how investment risk is built into the design and explained to members.
The analysis points to the UK model’s clearer approach. Target pensions adjust as markets move, so funding changes are recognised early rather than building up over time. Members are also told upfront that benefits can go up or down, helping to set more realistic expectations.
It also highlights the absence of large smoothing buffers. These can reduce short-term volatility, but they can allow losses to build up and be passed between generations. The UK approach instead links outcomes more directly to current funding levels.
According to the analysis, the framework has been shaped by international experience, including lessons from the Netherlands, with a stronger focus on clarity and fairness between members.
It also stresses that investment strategy is built into the design of UK CDC schemes. Risk-sharing is not treated as an afterthought and clear rules are in place so benefits can rise or fall in line with the scheme’s funding position.
LCP partner Laun Middleton says: “Collective pensions are often said to have ‘failed’ in the Netherlands. But the reality is more nuanced. The Dutch experience shows that the durability depends not on avoiding investment risk, but on how that risk is recognised and shared across generations.
“For the UK, the challenge is not to prove that collective pensions can generate higher returns, but to ensure that the risks taken are consistent with what members understand and trustees can manage over the long term.
“The question is not whether CDC involves risk, it always does, but whether that risk is recognised and governed before expectations move beyond what economics can sustain.”
