Collective Defined Contribution (CDC) Schemes: Assessing Capacity for Alternative Investments
By Aili Chen, CFA
As pension systems adapt to changing economics and demographics, there is growing interest in collective defined contribution (CDC) schemes as they offer a different approach to retirement savings compared to defined benefit (DB) schemes. Instead of providing a guaranteed pension payment, CDC schemes provide workers with a pot of money to use in retirement, alleviating corporate sponsors of the responsibility and cost associated with providing lifetime guaranteed benefit payments. The size of the pension pot can increase or decrease depending on factors such as investment returns and contribution levels. In CDC schemes, the fund is managed collectively, meaning that investment and longevity risks can be shared among participants, potentially making retirement outcomes more resilient to market shocks compared to individual defined contribution plans.
Source SSRN
