Navigating post-retirement solutions

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The recent DC forum panel discussion brought together four experts to share their perspectives on post-retirement solutions.

Tom Danaher, an investment specialist at Baillie Gifford who sits on the Investment Association’s retirement income working group, hosted the panel.

The panel featured Laura Myers, Pete Glancy, Mark Rowlands and Ian MacRae, each bringing unique insights into the challenges and innovations in the DC landscape.

Understanding the challenges of DC decumulation

Laura Myers, head of DC and a senior partner at Lane, Clark and Peacock, started the discussion by highlighting the complexities of DC decumulation.

She emphasised that pension freedoms have introduced complicated decisions for retirees, who must now consider longevity, care funding and tax implications.

Myers pointed out that many DC savers are unprepared for these decisions, having been auto-enrolled into a default investment strategy with a default contribution rate and target retirement age.

As a result, members often default to taking tax-free cash and leaving the remainder invested, often leading to poor outcomes as inflation erodes the value of that cash.

She stated, "Pension freedoms gave people choice, but they also gave them incredibly complicated decisions to make at retirement. We're asking people to think about how long they will live, whether they will need to fund for care in later life, and that's before they start thinking about things like tax pitfalls".

Given the statistics on cognitive decline, she highlighted the need to provide members with clear guidance and post-retirement support.

Myers discussed the positive impact of the Financial Conduct Authority (FCA)-mandated investment pathways, which aim to align members' investments with their retirement objectives.

The 2023 Department of Work and Pensions consultation effectively means that members of trust-based schemes who do not exercise their right to choose will be set on the default pathway.

However, she expressed concerns about the variability in asset allocations across providers, using examples from Investment Pathways. Laura highlighted the need for more sophisticated solutions to address issues such as longevity protection.

Innovative decumulation approaches

Pete Glancy, head of public policy for insurance, investments and pensions at Scottish Widows, introduced a three-dimensional model to simplify the decumulation debate.

It came about as part of Scottish Widows research published last year, highlighting the complexity of the DC challenges that need to be worked through and the DC market’s relative immaturity.

The framework is designed to make the debate more accessible to everyone involved in pensions, from actuaries and advisers to companies running pensions and scheme members.

This three-dimensional model considers requirements for flexibility, income consistency and passing on wealth to the next generation, providing a framework for designing decumulation products.

Glancy's research revealed that the most critical attribute for most DC members is the certainty of income for life, followed by the ability to pass on wealth and income consistency.

“Most people are on the left side of the cube, which is about an income for life rather than flexibility, which is different to the demand that we see in the market for two-thirds of people taking income drawdown, compared with only one-third taking an annuity,” he explained.

NEST's fiduciary approach

Mark Rowlands, head of retirement at the master trust Nest, shared insights gathered from research on its members over several years. The research highlights a similar preference among members for delivering the highest possible income for life while maintaining flexibility.

He noted that even DC markets that are 25 years ahead of the UK, such as North America and Australia, have not solved the conundrum, so it was naïve to expect an individual to solve it or even want to solve it independently.

Rowlands emphasised the importance of fiduciaries guiding members through retirement and giving them choices.

He described NEST's 30-million-strong membership to indicate some of the complexities. Many work part-time, are on the lower end of the wealth scale and hold multiple jobs.

He said the old model, where you reach retirement age, receive a carriage clock when you finish work on a Friday and are fully retired from Monday, no longer applies.

“Very few people retire on the day they think they are going to retire,” Rowlands asserted. For example, their health or a relative’s health may force early retirement, or an employer may do something that leads to the employee retiring.

Given the unpredictable nature of retirement dates and diverse needs, it is no surprise what the members want. He said: “Delivering the highest possible income that is sustainable for life is the priority. Flexibility is the second priority because they don’t know what retirement looks like.”

NEST hopes to offer a guided option within the next year. This option will involve members deciding the level of tax-free cash they want to withdraw.

This will enable them to see the income level they will receive under the guided option, which will help them decide whether to go for that option or go down the self-managed route.

For those who take the guided option, NEST will run an investment account that pays income until they reach 85. Rowland noted that at age 75, a slice of it will be put into a mortality pool to guard against the risk of living too long, enabling “a member to have income for [the rest of their] life.”

Retirement planning from an employer’s perspective

Ian MacRae, finance pensions investment manager at Jaguar Land Rover, highlighted the importance of adequacy in retirement savings.

"People are not saving enough. We can talk about investment strategies and accumulation, but if people don't have enough capital, it's meaningless," McRae remarked.

To guard against this, the company has implemented an automatic escalation policy for its workforce. The plan, which will run over the next five years, will bring employees’ savings rates to a reasonable level to provide some adequacy.

He discussed the challenges of sequencing risk and the need for sustainable income throughout retirement. He used the analogy of preparing for and then going on holiday as an example of the typical member’s current challenge.

First, they must prepare by increasing their savings. Once they go through departures, they then find out that they also need to fly the plane!  We ask members to ‘turn on’ retirement income when they reach the post-retirement stage, which Ian likened to walking  into an aircraft’s cockpit, and looking for a start button to press without knowing where it is or how to activate it.

McRae also emphasised the role of employers in supporting employees' retirement planning through tools and communication.

He noted, “Our goal is to support people meeting their needs efficiently and comfortably, not just to the minimum. As a business, we do need people to be able to retire.”

Looking ahead: Policy and innovation

The panellists agreed that while positive steps have been taken to address DC decumulation challenges, much work remains. They called for continued innovation in the market and highlighted the need for clear guidance and support for members through their retirement journey.

As the DC landscape evolves, providers, employers and policymakers must collaborate to ensure positive outcomes for retirees.

Words by Gillian Christie

Risk factors

This communication was produced and approved in March 2025 and has not been updated subsequently. It represents views held at the time and may not reflect current thinking.

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