New research estimates that collective defined contribution pensions would be on average 70 per cent higher than traditional defined contribution, and 40 per cent higher than typical defined benefit schemes.
CDC is a novel form of retirement provision under which employers pay a fixed rate of contribution into the scheme and members are paid pensions with variable increases.
A change in law expected to allow employers to establish their own CDC arrangements is due as early as next year.
Unlike traditional, or individual, DC arrangements, where each member builds up a pot of savings that they may invest as they choose, under CDC each member is due annual retirement income, but the savings are invested collectively.
Members are not required to make investment decisions, or decisions on their benefits as they retire.
Another difference informing the claimed superior performance of CDC is that investment risk is pooled and shared between members.
Work by the global advisory, broking and solutions company Willis Towers on the proposed Royal Mail CDC scheme informs a new guide which argues that, while in individual DC arrangements members typically reduce investment risk as they approach retirement, the pooling of risk in CDC allows its members to hold onto higher risk, higher returning assets for longer.
The guide’s claimed 70 per cent improvement in pension compares to a DC pot annuitised at retirement.
Legislation enabling the creation of CDC schemes forms part of the Pension Schemes Bill, is due to be debated in Parliament this week.