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Managing my investments
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5.4.1 Learning from the Dutch: collective defined contribution schemes

This is an illustration of a windmill, labelled 'Holland'.
Figure 10 Can we learn from Dutch pension schemes?

A further reform of pensions was announced in the Queen’s Speech in November 2014.

This proposed the introduction of ‘collective defined contribution’ (CDC) pension schemes. These have worked successfully in the Netherlands and involve workers pooling their pension contributions with thousands of others rather than just paying into their own pension fund. The rationale is that the greater collective size of a CDC fund would allow for a wider diversification of investments and a greater ability to manage investment risk, hence achieving more stable outcomes. The costs of running a fund would be proportionately less than for an individual pension pot, thereby also helping to boost the returns achieved.

Evidence from the Netherlands shows CDC schemes outperforming the average returns seen on conventional defined contribution schemes, with those retiring on a CDC scheme receiving on average 28% of their salary, as opposed to 21% on average from defined contribution schemes.

In April 2023 The Pensions Regulator authorised the first CDC scheme in the UK – the Royal Mail Collective Pension Plan. More schemes are expected to follow.