Collective defined contribution (CDC) pension schemes were resilient to very different market conditions over an 80-year period, except during a period of extreme stagflation, new modelling by LCP has found.

CDC schemes combine the structure of a defined benefit (DB) scheme with the cost certainty of a defined contribution (DC) scheme.

The LCP analysis used 80 years of real market data to explore how CDC pension schemes performed across very different economic environments, and how their outcomes compared with DC and DB arrangements.

The research found that CDC pensions were generally stronger and more stable than individual DC, beating inflation in three of four 20-year periods, and reducing the risk of ‘point in time’ losses at retirement, by smoothing out market ups and downs.

A consistent feature of CDC across all periods was its ability to maintain exposure to growth assets throughout retirement.

Outcomes also varied by age and horizon, and the research found that CDC pensions evolved with market conditions, reducing the risk of poor retirement timing.

Commenting on the research, LCP partner, Ivan Buzulutsky, said: “Our analysis highlights how different pension designs respond to very different economic environments.

"CDC does not eliminate investment risk, nor does it guarantee outcomes. Instead, it changes how risk is shared and how outcomes adjust over time.

“The experience of the past 80 years does not predict the future, but it does illustrate the structural strengths and limitations of different pension designs.

"For policymakers, trustees, and employers considering CDC, the key question is not whether risk can be removed, but how it should be shared – and whether members are comfortable with the form that sharing takes.”

LCP partner, Helen Draper, explained that “one of the key strengths of CDC schemes is that they avoid locking in poor outcomes at a single point in time, allowing members to continue participating in long-term growth during retirement”.

But these features come with trade-offs, according to Draper.

“Outcomes within CDC vary by age and market experience, and pensions in payment may fluctuate in real terms.

"Whether this is viewed as desirable depends on how fairness is defined: as individual ownership of outcomes, or as collective sharing of risk.”

Last October, the government laid regulations to allow the expansion of multi-employer CDC pension schemes.

The government estimated that millions of people across the UK could see their pensions increase by up to 60 per cent under the new savings vehicle.

In March 2026, Royal Mail’s CDC scheme – the first in the UK – revealed a pension increase of 6.4 per cent in its first year of operation.

---