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

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  • John Armstrong
  • James Dalby
  • Rohan Hobbs

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.

Suggested Citation

  • John Armstrong & James Dalby & Rohan Hobbs, 2025. "A comparison of the effectiveness of alternative DC and CDC designs in a UK market," Papers 2504.16892, arXiv.org, revised Jul 2026.
    • Handle: RePEc:arx:papers:2504.16892
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    References listed on IDEAS

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    Cited by:

    1. John Armstrong & Cristin Buescu & James Dalby & Rohan Hobbs, 2025. "Machine-learning a family of solutions to an optimal pension investment problem," Papers 2511.07045, arXiv.org, revised Aug 2026.

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