What areas should providers focus on before launching their decumulation solutions into their Master Trusts?

2026 will be a key year for DC decumulation. Most providers will launch or refine their post-retirement solutions ahead of introducing them into their Master Trusts. Regulation requires all Master Trusts to have a default solution in place in 2027.

In August 2024, I wrote a blog focused on key attributes all post-retirement solutions include. It has largely stood the test of time – with most solutions to date following the five key areas identified.

Over the next 12 months, as an industry we will go on a swift learning journey to ensure solutions are appropriate and robust enough to be default solutions for a material population of those retiring soon. This blog will identify key elements to be addressed or refined ahead of launch and a look forward to the future of decumulation solutions.

We started with investments; we now need to build the proposition

More so than pre-retirement, an effective post-retirement solution requires holistic planning across communication and strategy.

To date, Guided Retirement solution developments have been a little bit ‘cart before the horse’ - the investment proposition built first and the broader proposition built later. This is understandable – we have had more regulatory clarity around the investment inputs than other solution aspects. For example, those impacted by the advice guidance boundary review such as screening and signposting appropriate solutions. Now we need to put all of the pieces together to complete the jigsaw – in a structure I think a little like the below.

Robust screening 

Screening questions require careful balance – too many questions could disincentivise members from completing the survey, too little is likely to mean insufficient content to understand the individual’s needs. We have identified five key questions we think need to be answered that materially shape the type of solution being offered members, including:

1. Are you a renter or have regular financial commitments? Individuals with regular financial commitments are more likely to value an annuity income. My colleague Steve Webb, in this paper, identified a cohort of c22% of individuals who are likely to value an annuity income – and this cohort is likely to rise.
2. Are you planning your finances individually or part of a couple? 60% of individuals reach retirement as part of a couple – two inflation linked government pensions (c£12k each) represent a very different household income profile at than one – solutions need to recognise this.
3. Do you have any other savings? Our 2025 Financial Wellbeing survey data indicates 92% of 65 year olds earning £30-50k have at least three months savings. For these members, it may be appropriate to remove or reduce any explicit cash allocation in a post-retirement solution.
4. Do you have another income or pension savings? earnings and other pensions should be captured in any recommended solution.
5. Are you in good health? You don’t want a strategy assuming you retain money into your 90s if you are unlikely to live much beyond 70.

Product choice - a shift from ‘output’ based to ‘input’ based (?)

To date, solutions have often focused on addressing the same choices identified in Freedom and Choice, but with refinement and improvement: income drawdown, a short-term cash pot and annuity income. In short, the market has tended to design solutions around these three known ‘outputs’.

The majority of ‘flex and fix’ solutions have been structured to capture elements of all three. These solutions are likely going to be most Master Trust’s ‘primary default’. However, whilst they offer customisation, this is often within a framework (varying levels of cash or timing of annuitisation), they will not allow for full choice.

I think, over time, post-retirement solutions will develop to reflect member ‘inputs’ from screening questions.

For example, if a member says they are part of a couple, want to invest according to sharia law, have ongoing rental commitments of £700 a month and want to front-load retirement expenditure - I would expect solutions to be flexible enough to cater for these needs by using different underlying building blocks flexibly within a framework.

In my mind, full customisation of solutions is the next decumulation journey.

Investment strategy

Take sufficient risk in the income drawdown stage 

In our view, many flex and fix solutions don’t take sufficient risk in the income drawdown phase to meet member needs. This is understandable. A slightly prudent mindset is natural with any new product launches.

We believe that over time solutions can be tweaked to be less ‘prudent’ to the benefit of members. We define prudence as the probability members will ‘run out’ of money in their income drawdown solution before annuitising in later life.

We believe strategies can be ‘less prudent’ (take more risk) because:

• Members won’t ‘run out of money’ at any point. A worst case scenario being they either annuitise earlier, or in an Armageddon scenario, live off the state pension (c£12k, £24k if part of a couple).
• Most members investing in a ‘flex and fix’ solution, want to front load expenditure in their active retirement phase. Unless strategies are less prudent, most people end up have an increase in income at exactly the wrong time given their needs – post annuitisation.

Our modelling below shows how, if we model 30% probability members run out of money (70% prudence) there is still a meaningful increase in mean expenditure (black line) when members annuitise. This is suboptimal and should be considered in any solution design.

Innovations in longevity pooling

To date, most providers are using a single annuity solution members opt in to purchasing just before the purchase is made. For example, if the solution annuitises at age 80, a member would have to consent to the annuity purchase just before. This journey is suboptimal for a number of reasons:

• There is a general recognition that all decisions need to be front loaded. Asking a c80+ year old, where cognitive decline is c58%, is not a realistic long-term solution.
• Bulk annuities may provide members with a better outcome and providers a more commercially attractive means of offering a solution.
  • Many members may have a pot size at this point of less than £5-15k by age 80 when they are annuitising, making it not viable for providers to purchase individual annuities.
  • FCA rules on ‘open market options’ encourage an 80 year-old to shop around alternative providers for the best deal. This is clearly sub-optimal given cognitive decline.
  • Wholesale annuity rates are likely to be better than those available to the retail market. However, health conditions will vary greatly at this age. Therefore, some members might do better with a heavily underwritten individual annuity and need to be filtered out.

NEST are pioneering thinking about whether there is a collective way in which they can purchase a ‘bulk annuity’ for their membership that mitigates individual health considerations, pools longevity and would be more commercially viable to operate. We know this is something other providers are considering.

Could decumulation CDC better support the longevity pooling / annuity solution?

A number of providers are exploring offering CDC solutions post-retirement. As my blog comparing CDC and DC showed, this could be seen as the ‘holy grail’: members save in DC, then if they would like a stable income in retirement, decumulation CDC could deliver better outcomes than an annuity. I will shortly be working with a DC provider to explore decumulation CDC. However, I have three particular areas I want to explore to be comfortable with decumulation CDC’s viability:

• Scale - CDC works best at scale, particularly in decumulation where members are older and mortality is more volatile. A key challenge will be achieving critical mass, given members are likely to need to opt in – either implicitly through screening questions or active choice.
• Regulation – Current CDC regulations currently assume an index-linked pension. Members already benefit from an index-linked state pension to the tune of c£12k a year. In my post-retirement blog, I demonstrated how even members with a £240,000 DC pot (as well as the state pension) are likely to see an increasing real income in retirement. Ideally, therefore, Decumulation CDC solutions would be fixed annuities. However, would cause ‘mechanical issues’– for example cutting pensions in payment every year to ensure the solution is efficient for member needs. It may be therefore that an appropriate way of using CDC could be as a ‘hybrid’ solution – with some decumulation CDC allocation providing inflation awareness and the rest used as a traditional DC pot. One for the regulator / providers to mull over?
• Investment strategy – CDC enables pooled investment and so in accumulation much higher return potential. Post-retirement – members will be older (more volatile mortality), not contributing and drawing regular income. As such, my initial assessment is that the investment strategy will need to be more focused on income production than explicit growth. I am interested in exploring how different the return of such a solution is then compared to income drawdown. If providers are offering members an option to select a monthly income from their drawdown pot and only prompt/make changes when there is expected to be material deviations – income drawdown may feel very much like decumulation CDC anyway?

Automated Ongoing Monitoring (in-flight adjustments)

A key area of focus for the industry is the degree to which ‘in-flight’ adjustments can be made (with regulatory support) and should be made on behalf of members to result in better outcomes. By in-flight adjustments, we mean the degree to which providers can change the amount taken by members in response to spending rates or market conditions.

Some providers are exploring a guardrail approach – ie that no change is made to member regular income within an acceptable tolerance. This provides a balance between trust in the solution paying regularly and having a way to alert members when active engagement is needed to improve outcomes. The way this approach is communicated to members to retain trust and allow customisation, if desirable, will be quite the challenge.

However, when done correctly – it is easy to demonstrate that in-flight adjustments have the potential to being one of the biggest contributors to member outcomes post-retirement. The graphs below show the impact on spending patterns in retirement if there are no adjustments after an initial income is set (on the left) compared to ‘in-flight’ adjustments (on the right). You can see that income can be much more closely managed to meet member needs with a smoother overall median outcome (the black line) but also the distribution of outcomes (the surface area of the blue shading).

So, lots to think about, lots to refine, 2026 will be an exciting year for decumulation boffins!