Collective defined contribution (CDC) pension schemes need an investment approach designed around member outcomes over time, rather than maximising returns, LCP has argued.

As part of its CDC investment secret series, LCP stressed that a new ‘investment playbook’ was required, moving beyond traditional portfolio metrics to focus on members’ actual experience.

This shift away from maximising returns called for more innovative approaches to portfolio construction, the consultancy noted, combining long-term growth with resilience to inflation, market stress, and evolving economic regimes.

CDC pension outcomes are not fixed in advance, unlike defined benefit (DB) pensions, and not solely determined by individual investment experiences, unlike DC pensions, with investment returns shared and feeding through into pensions.

The paper argued this changed how risk and success should be assessed, as CDC scheme investment strategies should be judged by how they support expected pensions, downside outcomes, pension stability, inflation resilience, and the likelihood of reductions, instead of concentrating on short-term market movements or volatility.

Furthermore, LCP said that CDC pension investment strategies should start with desired member outcomes, before working backwards to portfolio behaviour and construction to support them.

Appropriate strategies for CDC scheme portfolio construction were expected to depend on how schemes balance various objectives, including adequacy, stability, inflation resilience, and intergenerational fairness, and how these objectives align with the scheme’s wider benefit design.

LCP said that, once this balance has been found, portfolio construction should focus on delivering sustainable pension outcomes across a range of fiscal scenarios, likely leading to greater emphasis on long-term growth assets, diversification across economic regimes, inflation resilience, and recovery dynamics following market stress.

“CDC investment strategy is not about avoiding risk; it is about how investment risk is translated into pension outcomes over time,” commented LCP partner and head of CDC, Steven Taylor.

“That requires a shift in mindset and a more innovative approach to investment design. The key challenge is building portfolios that can absorb shocks, recover from stress and continue to support sustainable pensions for members over decades.”

LCP partner, Laun Middleton, added: “CDC needs a broader investment toolkit than traditional pension investing, drawing on the best ideas from both DB and DC.

“Long-term growth remains essential, but it must be combined with portfolio designs that are resilient through inflation shocks, market stress and changing economic regimes.

“The challenge for CDC investors is not whether to take risk, but how to build portfolios that can continue supporting member outcomes through decades of uncertainty.”

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