The Benefits of Doing Nothing in Retirement

As trustees of defined contribution schemes prepare for the introduction of guided retirement, a new report from the Behavioural Insights Team (BIT) reminds us that retirement planning is not just a financial challenge; it is a human one. The report argues that many members are not making poor decisions because they lack information, but because the choices available to them are often complex and difficult to compare.

The report considers a range of retirement models including drawdown, annuities, “flex and fix” approaches and collective DC solutions. Its behavioural conclusion is that any retirement strategy that relies on members making another important decision later in life carries risk. Many members, particularly those who face health and life challenges in later retirement, will become less engaged with their pension over time.

The report suggests that the best default is one where the “do nothing” path still leads to a reasonable outcome at every age. It encourages schemes to focus communications on retirement income rather than pot size and suggests tax-free cash decisions should be considered as part of a broader income-planning process.

It is a timely reminder that good retirement outcomes may depend less on creating more options and more on making well-designed decisions on members’ behalf.

Further reading

Defined contribution guided retirement: A behavioural perspective | BIT