Are you comparing CDC and DC pension offerings fairly? Some key areas to focus on

In October 2025, we published ‘Future of pensions’, a thought piece comparing CDC and DC across 5 different criteria.

From 2027, whole of life multi-employer and decumulation CDC solutions will launch to market. As such, trustees and corporate sponsors will need a clear framework for a cost benefit analysis between the two across both the saving and spending pension journey.

However, whilst direct comparisons are always appealing, they are not always appropriate, and we should think clearly about what we are comparing, and why. After all, DC and CDC are fundamentally different: DC is an individual saving journey resulting in a pot, CDC is collective solution resulting in a pension. It is essential therefore that as an industry we are transparent on where direct comparison is – and is not – useful.

In this blog, I address three focus areas where some coverage to date has, in my view, led to unfair comparisons, often to the detriment of DC. These areas were highlighted in our above thought piece but are expanded on in more depth here. 

I am a proponent of CDC. I believe it can deliver better outcomes and is simpler for members to understand. However, I also advise many large DC Schemes, so I am particularly keen to ensure that comparisons are fairly framed. Trust in the potential of CDC will grow if decision makers with DC experience can clearly relate to the DC benchmark in any comparison.

Ensure the benchmark for the CDC v DC comparisons correct – an income drawdown strategy not annuity purchase better reflects reality

There has been extensive coverage of how CDC materially outperforms annuity-targeting DC strategies, with improvements of 50-60% often cited. It is this number often cited in market coverage - because it is the most headline grabbing. The analysis is also valid as a like-for-like comparison. Both CDC and DC annuity strategies target a pension in retirement.

However, it is vanishingly rare that DC members are invested in an annuity targeting strategy.  When asking three mainstream DC providers - of over 600 new clients onboarded in the last 3 years, none selected an annuity strategy as the default.

Whilst some members do purchase annuities at retirement (FCA data shows 9% in 2024/2025 – up in recent years as a result of higher rates), they typically save in drawdown or cash targeting strategies beforehand.  

As such, a more realistic comparison is therefore CDC versus a DC income drawdown strategy, as we set out in our Future of Pensions document. Direct comparison here is challenging – to make an assessment, either a CDC ‘annuity’ income, needs to be converted to a pension pot, or a DC pension pot needs to be converted into an annuity; a slight leap of faith is required.

However, on this basis, we calculate CDC strategies are expected to outperform the median income drawdown strategies by 15-25%. The range isn’t a ‘margin for error’, more a reflection of the fact there are many different income drawdown strategies that we modelled. 15-25% is a less headline-grabbing number but, to state the obvious; c20% still reflects a very material increase in total post-retirement wealth.

Ensure the benchmark DC investment strategy is in line with current best ideas investment design

Much of the CDC v DC market analysis benchmarks CDC against DC accumulation investment strategies that were commonplace around 5 years ago. This does not reflect current reality or market trajectory – which is crucial in deciding future pension provision. In particular:

De-risking 

Most published comparative analysis uses 20 or 15 year DC de-risking periods. As UK DC matures and more members remain invested post-retirement, many de-risking periods have shortened in recent years. For example, at the time of writing, major DC providers including Aviva, Mercer, Fidelity and L&G all use 10-year de-risking, as do many of my Trust based clients. We know other Master Trusts with longer de-risking periods are currently reviewing this position with the trajectory of change likely to be shorter rather than longer. 

This may seem a small point of difference, but the output is reasonably significant. Extending growth exposure by a further 10 years increases member outcomes by between 4 and 10% using a sample of mainstream Master Trust strategies.

Figure 1 – comparison of annual expected return at each year to retirement – the triangle between the lines represents lost member returns due to later de-risking.

Asset allocation 

DC accumulation strategies are often represented in comparative modelling using 100% equities or a mix of equities and diversified growth funds. Private market allocations in DC are now commonplace across most Master Trust and large LCP Trust based clients, as they are in any modelling of CDC strategies. They should therefore be reflected in both comparative portfolios. 

The below outlines the differences in the strategic asset allocation between the growth phase of a mainstream Master Trust  income drawdown strategy and a strawman CDC investment strategy. You can see a very similar high -level asset allocation and with it an assumption of broadly similar modelled returns.

Similarly, the ‘at-retirement’ DC strategies are often modelled simplistically: either as a standard 40/60 equity and bond portfolio or in a lower returning strategy than market reality. Incorrectly stating the asset allocation at this point in the DC strategy materially distorts modelling results in two way:

• Small differences in returns compound significantly when DC pots are at their largest, making outcomes (and comparative analysis) highly sensitive to assumptions.
• Simplistic modelling does not capture the nuancing in the risk / return trade off we all know Trustees and providers are wrestling with when setting a responsible DC strategy.

Below we provide a breakdown of the highest returning DC strategy we see commonly shown as a comparator to CDC (the 40/60 portfolio) and compare it to three mainstream DC Master Trust strategies. You will see the at-retirement allocation to both be a simplistic representation, but also again underplaying the return potential newer DC strategies are expecting.

² LCP long term cash assumption is 3.8%. ³ All asset class assumptions are as at 30 September 2025

To be clear, we believe that there are material differences in the expected outcomes of CDC strategies when compared to DC and that this is due to investment strategy differences as well as Scheme design (a collective strategy), it’s just that some will be less visible in modelling. For example, whilst the use of private markets in the accumulation phase now looks similar across CDC and DC, there is no question that the lack of liquidity constraints in CDC will result in a better deployment vehicle. 

We will shortly be producing with a series on CDC investment ideas in the coming months capturing key asset classes CDC Schemes can exploit.

An acknowledgement that CDC and DC can be right for different members cohorts, but that choosing CDC in accumulation is less flexible. Decumulation could be different.

I believe the main reason for hesitation adopting CDC is that it requires companies to commit their members to a less flexible system than DC. This has been less of an issue in other countries where a direct transition from DB to CDC occurred. In the UK, where the interim step to DC has been commonplace, companies now potentially have to have more conviction in moving to a default targeting CDC given some members will value the flexibility DC offers.

That said, there are clear industries that CDC would likely be a beneficial outcome for members: those with lower median salaries (and so could do with the return improvement CDC offers) or those industries where less member choice is evidenced. The philosophical question is therefore - is it our duty to over-ride choice to achieve better outcomes for members? – in short, do we know best?

I think there are two ways to address this conundrum:

1. In accumulation - Adopt a ‘median member mindset’ – DC investment strategies are often designed with the median member in mind and an awareness of ‘outlier cohorts’ that need to be catered for. By the same logic, if ‘on average’ it is beneficial for members to be invested in CDC and no clearly identifiable large cohorts it would be detrimental to, whole of life CDC could be an appropriate default solution for members.
2. In retirement – It is likely to be post-retirement where members will demonstrate whether they value freedom of choice (DC), or a secure monthly income (CDC). We now have clarity on the advice guidance boundary review and providers will be developing a series of questions to better ‘guide’ members on what is best for each individual post-retirement. Once these solutions launch in Master Trusts in 2026/27 and are subsequently signposted to by Trust based clients and other DC schemes, we should be able to better understand which type of members and industries value income stability. This may indicate sectors where whole-of-life CDC solutions could be appropriate pension offerings going forward.  

DC with decumulation CDC – the best of both worlds?

Some providers are developing CDC options in decumulation to complement their DC offerings. This may seem counter-intuitive - provide flexibility (DC) in accumulation at a time it is proven to be less valued, before removing it at retirement (via CDC). However, what this pathway offers is flexibility at retirement to make a conscious choice to commit to CDC (or not) at a point in time when the member has more clarity on their needs. In our Future of Pensions document, we evidence a cohort of c25% people who may value a stable income in retirement (CDC) because, for example, they have ongoing rental commitments.

Concluding thoughts

I was once told “not doing something is making a choice”. As such, I think every pension decision maker needs to consciously assess whether CDC as a default solution in accumulation or as a post-retirement solution is right for their members.

I advise many DC Schemes I feel are offering very strong value for money, but I am also aware of CDC’s potential. To me, either a conclusion to stay DC, or move to CDC can be correct. However, not making an assessment is an implicit decision to remain where you are without factual support.