For decades, the industry’s primary focus was accumulation. The challenge was helping people save enough during their working lives. That challenge has not gone away, but it has been joined by a harder one.

Millions of people are approaching retirement with defined contribution (DC) pensions and facing a question that is structurally more complex than anything the accumulation phase presented.

How do you turn a pot of savings into an income that lasts for the rest of your life?

The difficulty sits in compounded uncertainty. Nobody knows how long they will live, how markets will behave, or what order returns will arrive in. Yet individuals are expected to make decisions that could determine their financial security for three decades or more.

Practitioners will be familiar with sequencing risk, the sensitivity of a retirement portfolio to the timing of returns rather than their long-run average. Two investors can achieve identical compound returns over a retirement period and experience materially different outcomes in decumulation, depending entirely on whether losses cluster in the early years or the later ones. Once withdrawals begin, early drawdowns reduce the capital base available to participate in any subsequent recovery. The damage can be asymmetric and, in sufficiently severe cases, permanent.

The mathematical relationship between early-period returns and sustainable withdrawal rates is well established; the challenge for the industry is translating that understanding into retirement products that reflect it.

Longevity compounds the problem. Someone retiring in their mid-sixties today may need their savings to support thirty years of income or more, across a period that also involves inflation exposure, potential healthcare costs, and sustained market volatility.

Where existing solutions fall short

Many retail pension structures were designed around accumulation rather than income sustainability. Standard equity and bond allocations, while appropriate for the growth phase, can leave retirees overexposed to volatility, subject to tax leakage on overseas income, and unable to access the broader investment toolkit that institutional investors use routinely.

Larger defined benefit (DB) schemes have long approached retirement income differently. They draw on income-oriented equities, asset-backed credit, structured downside protection, infrastructure and, where appropriate, private markets. The objective is not maximising total return but generating stable, resilient income over a prolonged and uncertain horizon. These are fundamentally different problems and they call for different solutions.

Retail investors have historically had limited access to this kind of institutional approach, partly because of cost, partly because of regulatory complexity, and partly because the firms serving the decumulation market have not always been structured to support it.

Structure as a determinant of outcomes

Asset allocation tends to dominate discussion of retirement investing, but the implementation structure underneath the portfolio also has a material bearing on outcomes.

Withholding tax leakage on overseas income, for instance, is easy to underestimate in isolation; compounded across a thirty-year retirement it can have a meaningful effect on the final position. Similarly, the ability to evolve a portfolio as spending needs change, drawing on a wider asset class universe and adjusting risk management as the retiree ages, depends heavily on the operational capabilities of the underlying technology.

Building for real-world retirement

The next generation of decumulation solutions will likely differ significantly from the traditional balanced portfolio.

Investment design needs to reflect how retirement is actually experienced, including the reality that spending patterns are not flat. Many retirees spend more actively in the early years, stabilise in middle retirement, and may face rising care costs later. A strategy calibrated only to the long-run average of those patterns will not serve any individual well at any particular moment.

There is also a behavioural dimension that financial modelling can underweight. A technically efficient strategy that investors abandon during periods of stress will not deliver the outcomes it was designed for. The practical challenge is building portfolios that are resilient enough to remain credible, and stay in force, across the full range of market environments a retiree might experience.

Income-producing assets, diversified credit strategies, selective downside protection and inflation-sensitive investments all have a role in that kind of portfolio design. Modest private markets exposure may also be appropriate where liquidity requirements allow.

A defining period for UK pensions

The scale of assets moving into decumulation over the coming decades is substantial. Trillions of pounds of defined contribution savings will transition from accumulation to drawdown, against a backdrop of increasing individual responsibility for managing longevity risk.

The structural shift from DB to DC has already transferred a significant burden from institutions to individuals; the decumulation challenge is where that transfer becomes most acute.

The industry does not yet have a settled answer to the problem Sharpe identified.

There may not be a single answer. But the direction of travel is clear: toward more flexible, more tax-efficient and more institutionally informed retirement infrastructure, built around sustainable income rather than asset growth.

Investment and fintech platforms, wealth advisers, asset managers, trustees and policymakers all have a part to play in making that transition work for the people it affects most.

Hugh Cutler is chief commercial officer at Mobius . This article first appeared in Professional Pensions and can be reached from this link.