Designing CDC Investment Strategies for Member Outcomes

This technical report outlines the complexities involved in designing investment strategies for Collective Defined Contribution (CDC) pension schemes. It emphasizes that CDC portfolios must prioritize long-term member outcomes rather than traditional investment metrics. The document explains how CDC changes the investment problem by pooling risks and adjusting benefits collectively, which necessitates a shift from measuring portfolio volatility to focusing on member outcomes such as pension stability and replacement ratios. It discusses the importance of assessing investment strategies across a broader set of member outcomes, including expected pension levels, downside outcomes, and inflation resilience. Additionally, the report highlights that different CDC schemes can tolerate varying levels of investment risk based on their membership profiles, which influences portfolio construction. The document concludes that effective CDC investment strategies must balance the trade-offs between expected pensions and the stability of outcomes, ensuring that portfolios are resilient across different economic regimes.