A comparison of the effectiveness of alternative DC and CDC designs in a UK market

John Armstrong, James Dalby and Rohan Hobbs

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Abstract: We use three stochastic models to evaluate the effectiveness of a number of possible pension designs which have been proposed for use in the UK. We consider individual DC schemes followed by full annuitisation and a flex-and-fix strategy which combines drawdown with gradual annuitisation. We compare these approaches with collective designs including: a flat-accrual shared-indexation CDC scheme that is similar to the Royal Mail Collective Pension Plan; a dynamic-accrual shared-indexation CDC scheme modelled on the approach considered in the DWP consultation on multi-employer CDC; and an alternative collective design based on a tontine structure. In our comparisons, we tune each strategy to give optimal performance given the stochastic model and a choice of representative risk preferences. We find the collective design based on a tontine structure consistently achieves the best performance in terms of member utility. We discuss the importance of leverage in the optimal investment strategies.

Date: 2025-04, Revised 2026-07
New Economics Papers: this item is included in nep-age
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