CDC through the lens of history: markets, regimes and real-world experience

Pensions & benefits Investment CDC strategy and implementation

Ivan Buzulutsky Principal

Explore Chapter 2 of our CDC investment series, where we look at CDC through a historical lens, covering market cycles, regimes, and real-world experience.

Read Chapter 1: Why investment is critical to CDC

Laun Middleton Partner

Contact Laun

Ivan Buzulutsky Principal

Contact Ivan

26 March 2026 3 mins estimated reading time

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CDC investment strategy is twice as important as the contributions paid.

Following on from Chapter 1, in this Chapter we explore:

How robust is CDC in different market conditions?

Markets rarely behave the way investors expect. We back test CDC over the last 80 years and see how well it performs in different regimes. The results reveal that CDC’s investment structure can deliver resilient retirement outcomes, but with some economic scenarios to watch out for.

Ivan Buzulutsky Principle

What we can learn from the Dutch CDC experience?

Collective pensions are often said to have “failed” in the Netherlands. But the story is more instructive than that. The Dutch experience shows that the durability of CDC depends not on avoiding investment risk, but on how that risk is immediately recognised and shared transparently across generations.

Laun Middleton Partner

The success of CDC will ultimately be determined by how investment risk behaves across markets and across generations. History — both in financial markets and in the Netherlands — already provides valuable clues.

How robust is CDC to different market conditions?

Markets rarely behave the way investors expect. Over the last 80 years the global economy has moved through very different environments — from post-war expansion to stagflation, disinflation and the era of ultra-low interest rates.

To understand how CDC behaves across these conditions, we modelled outcomes using actual historical market data across four distinct 20-year regimes and show the results compared to the most recent regime that is most vivid in our memories.

: This period combined strong equity returns with moderate inflation. Investment markets performed exceptionally well, and CDC schemes would have passed those gains directly through to members in the form of sustained pension increases.

With growth assets delivering strong real returns, members benefited from rising pensions throughout the period.

: The inflationary decades of the 1960s and 1970s were by far the most challenging environment in the analysis. Inflation surged while real investment returns were weak. CDC outcomes were therefore more subdued. Pension increases frequently lagged inflation and purchasing power fell in real terms for periods of time.

However, the structure still avoided large nominal cuts and allowed younger members to accrue benefits cheaply during difficult market conditions — positioning them to benefit when markets later recovered.

: This period saw inflation fall sharply while financial markets experienced significant volatility.

Despite market swings, our CDC scheme generally maintained and gradually increased members’ purchasing power. Strong equity returns supported benefit increases and the scheme avoided cuts during the period.

: The most recent regime combined historically low interest rates with several major market shocks, including the global financial crisis.

This regime exposed the weaknesses of DB pension schemes and DC with annuity purchase as the costs or outcomes of these were dependent on the level of interest rates that collapsed during this period.

CDC responded differently. Because pensions adjust gradually over time rather than being fixed at retirement, members would have been able to participate in the market recovery that followed major downturns.

A system designed for changing conditions

These regimes show how unpredictable long-term economic conditions can be. CDC does not remove investment risk — but it changes how that risk affects outcomes, allowing pensions to adjust over time.

The strategies used in this analysis are deliberately simple. In practice, modern CDC schemes have access to a much broader investment toolkit and more sophisticated portfolio design.

In Chapter 3 we explore what this means in practice — how risk should be measured in CDC schemes and how portfolios can be built to perform across different economic regimes.

What the Netherlands teaches us about CDC

It is often said that collective pensions were tried in the Netherlands and ultimately abandoned — so why should the UK expect a different outcome? That framing misses the more instructive lesson. The Netherlands did not abandon collectivity; it redesigned it. The experience highlights not that collective pensions “fail”, but that the durability of any collective system depends on how investment risk is embedded, recognised and shared over time.

Expectations – and risk – fell out of alignment

For decades, Dutch collective schemes delivered strong outcomes through large, growth-oriented, collectively invested funds. Benefits were explicitly conditional, but long periods of stable outcomes led many members to perceive pensions as secure and predictable.

The tension emerged when markets disappointed and funding deteriorated. Dutch schemes operated with funding buffers that allowed investment gains and losses to be absorbed gradually rather than immediately reflected in benefits. That smoothing provided short-term stability particularly for pensions in payment, but it also deferred the visible impact of shocks.

As buffers were drawn down and funding pressures accumulated, eventual benefit adjustments became unavoidable. By then, however, expectations had shifted. Members were being asked to bear investment risk that, in practice, had been obscured for a period. The central challenge was not collectivity itself, but misalignment between the risks embedded in the investment strategy and what members believed their pensions represented.

Investment strategy as a structural choice

This is where investment strategy moves from implementation detail to core design feature.

Higher expected returns can support higher pensions — but only by accepting greater variability in outcomes. When returns are smoothed through buffers or delayed recognition mechanisms, the economic risk does not disappear; it is redistributed over time and across cohorts.

Resilient collective pensions therefore depend on maintaining alignment between three moving parts:

member expectations,
the risks embedded in the investment strategy, and
the mechanisms used to adjust benefits when conditions change.

Where those elements remain aligned, collective systems can pool longevity risk, mitigate poor individual timing and support higher long-term income.

Why are UK CDC schemes more likely to succeed?

Immediate recognition of market movements: UK CDC adjusts target pensions as asset values change, reducing the risk that shocks build up unseen within funding buffers.
Clearer expectations around conditional benefits: The UK framework explicitly communicates that pensions may adjust, helping align member expectations with investment reality.
No large smoothing buffers: By avoiding collective buffers, the UK design reduces the risk that investment losses accumulate and later fall unevenly across generations.
Designed with international hindsight: The UK is implementing CDC after decades of international experience, allowing lessons from the Netherlands to be reflected in the regulatory and governance framework.
Investment strategy embedded in scheme design: UK CDC recognises that how investment risk is taken and shared is a structural feature of the scheme, not just an implementation detail – just as we showed in Chapter 1.
Explicit mechanisms for benefit adjustment: UK schemes are built around transparent rules that allow pensions to rise or fall as funding conditions change.