Willis Towers Watson (WTW) have done some work presenting their thoughts on “decumulation”. This is known on this blog as “turning to pensions”.
Thanks to Simon Ellis, whose work as Chair of Lifesight, the WTW DC mastertrust is important. This is how I have recently quoted from his Chair statement and he has sent me the work of his provider.
The “decumulation” options that WTW’s Lifecyle offer should next year get some legislation that by 2028 may give rise to regulation. WTW have committed themselves to offering a Retirement CDC which is added to the discussion in the document in this “YouTube”.
It is intended as WTW’s guidance to other trustees than their own!
Decumulation, often described as the “nastiest, hardest problem in finance”, sits at the heart of how members turn their pension pots into a sustainable income for life.
In this episode, and the first in a two part series, host Sophie Tennison speaks with pensions lawyer Wendy Hunter and WTW adviser Andrew Doyle to unpack why decumulation is so complex, what’s changing under the Government’s new Guided Retirement framework, and how schemes can better support members at retirement.
They explore the trade offs between drawdown, flex and fix solutions and lifelong income options like Retirement CDC, and the legal and governance considerations trustees must navigate. The conversation brings together market developments, regulatory shifts and practical steps trustees can take as the industry moves towards more structured, supportive retirement pathways.
The discussion is over how members can get “longevity” protection. This means insurance against people living too long. The Pension Schemes Act (as it now is) defaults people into some way of paying people a pension from their pot.
People don’t know how long their lives will last, what inflation is going to be and how much their pot will grow to meet the need. This stuff is difficult for actuaries at WTW so what hope has the ordinary member, unless they get a clear way forward by the trustees.
Add to the protection that there will be enough at the end of days , a need by ordinary people for an income as they go through life.
DIY, Flex and Fix and CDC are the three options that WTW offer us. That could be explained as doing it all by yourself (only 15% of people do this ). Flex and fix is the trustees “helping them do it” where a lot of decisions stay with the members and the third is “do it for me” where members have no choice but a single solution – called retirement CDC.
Wendy Hunter and Andy Doyle discuss the options available to smaller schemes than WTW (just about all DC schemes). WTW consider whether trustees should go their way or join up with a larger scheme (such as WTW). The challenge is not whether they should have a CDC now but how they can defer taking a decision till all the options are on the table.
Trustees are seen to be responsible for the decisions that members don’t take and could be sued by members who don’t get it right (as far as they are concerned). This risk (for trustees) is mitigated by giving every member the options to DIY and flex and fix as well as CDC.
With the best will in the world , this is still a question of how to let the trustees off the hook.
I don’t think it’s the job of trustees to force people into defaults of whatever kind unless they had conviction that it is right for the majority of staff and that all staff have options to take as an alternative.
It is surely the job of large employers to work out whether they want to be in a DC scheme or a CDC scheme where the choice of opting out is similar to the choice of leaving a DB plan. This means taking away the pot and replacing it with a pension, giving people a CETV not a sum of money in a pot.
So there is another option that WTW and Wendy’s Squire Patton do not discuss and that is whether employers may take a decision to move their staff from DC to CDC and take away all decisions from employees. This is returning to a world before DC arrived as the principal way of auto-enrolling workers into a workplace pension.
Of course such a CDC would have to be a workplace pension and offer an opt-out but it would be from a pension scheme not a savings scheme with the nastiest hardest problem place on savers at retirement. One of those choices may be to default to a CDC scheme starting when they want their income and that seems a better option than flex and fic and DIY for people who don’t like taking decisions. But it’s still a decision and a decision which like buying an annuity , depends on the market in the day or month that a transfer to CDC is made.
So it will be employers who should be involved ultimately in the type of workplace pension they offer their employees and that cannot be confined to DC till retirement. It has to be possible for employers, even those who currently use Lifesight, to consider switching to a whole of life CDC, one that really takes away the “nastiest, hardest problem of finance” from the people least capable of solving it!