Fri 09 Dec 2022 - In the UK, the idea of collective defined contribution (CDC) pension schemes is gaining more attention with the launch of the Royal Mail CDC scheme, the first of its kind in the UK. In this webinar we investigate the performance of a defined benefit-like CDC scheme, by considering the income paid out in retirement to the scheme members. This builds on our previous webinar, which explained the different types of investment risk-sharing in such a CDC scheme.
The performance of a defined benefit-like CDC scheme is compared to other alternative pension vehicles, such as saving in a defined contribution scheme followed by the purchase of a life annuity at retirement. It is seen that a higher equity investment gives a higher expected income in the CDC scheme, compared to the alternatives. However, the cost of the higher equity investment is a greater risk borne by the participants.
Finally, the performance of the CDC scheme is considered under different investment strategies, and the effect on the income paid out to generations of members in the scheme is discussed.
Policy Manager at Institute and Faculty of Actuaries
Catherine Donnelly is a Professor in the Department of Actuarial Mathematics and Statistics at Heriot-Watt University and is Director of the Risk Insight Lab. Prof. Donnelly is a qualified actuary who has previously worked in the pensions industry. She has a PhD from the University of Waterloo, Canada, an MSc from the University of Oxford and a MA from the University of Cambridge. Her research interests lie in pensions and life insurance, and she has published widely in these areas. She was a member of the USS Joint Expert Panel in 2018. Prof. Donnelly has a keen interest in developing workable solutions to improve people’s financial situation in retirement.