Pensions experts warned that many members are at risk of making poor retirement choices, with current defaults, guidance and CDC solutions failing to provide the clarity needed for secure and sustainable incomes.
Speaking at the Corporate Adviser summit, Redwood Employee Benefits managing director Jason Brice, Gallagher John Yates principal DC promotion leader and Pensions Policy Institute head of policy research Dr Priya Khambhaita highlighted the risks of members “sleepwalking” into poor decisions, the need for defaults that balance flexibility with security and the uncertain role of CDC in providing sustainable incomes.
Brice said that many savers still see their pension pots as “lumps of money”, rather than a source of long-term income. Larger pot holders may calculate the income they can draw but smaller pots can be overlooked, leaving members at risk of withdrawing funds prematurely. He noted that engagement and advice can prevent mistakes but many people have already acted without guidance.
Yates stressed that framing pensions in terms of income rather than pot size is critical. While pots are generally growing, members often struggle to connect them to the income they will need in retirement. He also highlighted consolidation and the role of master trusts noting that good practices in master trusts will eventually influence group personal pensions ensuring members have consistent exit options.
Brice also highlighted regulatory pressures, noting that authorities are focused on areas where “the most damage can be done.” Targeted support, particularly for large default funds, is expected to receive regulatory backing to help protect high-risk members.
However, when attendees were asked how much impact such targeted support might have on retirement outcomes, 72 per cent said it would make outcomes slightly better, 26 per cent said significantly better, and 2 per cent expected no change.
Khambhaita emphasised the need to protect those at greatest risk, highlighting the “bucket approach,” where some pension funds are available for flexible drawdown while others are reserved for long-term income. She said: “The principle is the same: some flexibility but with some stability as well.”
She also noted social and demographic pressures influencing retirement decisions. She warned that many people underestimate their spending in the early years of retirement, while others delay retiring due to family finances.
The panel agreed that defaults and guidance solutions must evolve to meet members’ varied needs. Khambhaita said the industry still faces questions over timing, range of defaults, and how to provide meaningful support without assuming a one-size-fits-all approach.
She added: Khambhaita added: “There’s a need for defaults, but what are these defaults going to look like, at what stage do we offer them, and how do we have a greater range in accumulation and beyond? These are all questions we still don’t have the answers to.”
Brice and Yates stressed the importance of personalised guidance and clear communications to prevent members from “sleepwalking” into risky decisions. They said that while CDC and other innovations offer potential, much depends on effective implementation and the careful design of defaults that combine flexibility, security and sustainable income.