Single solution unlikely to be appropriate for everyone, but compelling case for R-CDC as part of the mix

LCP partners have been responding to the two new publications today from DWP.

These are a consultation on ‘guided retirement’ and how defaults should work in practice, as set out in the Pension Schemes Act 2026, and a consultation on draft regulations to pave the way for ‘Retirement CDC’ options. Although the Government has said that savers will be free to choose something other than the default option, the lesson of automatic enrolment is that defaults have an ‘anchoring’ effect, and can have a big impact on where most savers end up.

Commenting on the Guided Retirement consultation, LCP partner Steve Webb said:

“The Government is right to say that managing a DC pot in retirement through the ups and downs of markets, and with no idea how long the pot needs to last, is challenging. So the basic idea of ‘guided retirement’ is welcome. But there is a danger that the government’s hostility to pension freedoms will lead them to promote ‘lifetime income’ solutions too heavily. If people want a secure income for life, the option of buying an annuity has always been there, but very few people freely choose it.

"Many people will have a good level of secure income – especially in the case of a couple with two full state pensions and some other pension income – and may prefer the flexibility to take their DC pot in ‘chunks’ as needed, rather than spread thinly through the decades of retirement. This is likely to be true of homeowners in particular, who show a preference for ‘front loading’ their spending to earlier in retirement. It is vital that the focus on retirement income does not destroy ‘freedom and choice’ in pensions which have been popular with savers and given valuable flexibility to hundreds of thousands of people in the last decade.”

Commenting on the consultation on Retirement CDC (R-CDC), LCP partner Sam Cobley said:

“We welcome the alignment of broader decumulation and R-CDC specific regulations. It is clear that different cohorts of members have different retirement needs that need to be catered for and that a single solution is unlikely to be appropriate for everyone.

"To that end, there is a compelling case for R-CDC, either as a standalone solution, or as part of an existing decumulation proposition. It affords a different profile of retirement income to traditional ‘flex and fix’ models and potentially greater income stability.

"However, R-CDC remains a new and untested proposition both in the UK and wider global pensions landscape. We look forward to working with regulators, providers and clients to explore how it can be developed and fairly deployed in a solution future retirees can have confidence in.”