New Choices, Big Decisions: 5 years on


Pension freedoms, introduced in April 2015, have radically changed how people can access their Defined Contribution (DC) pension pots after the age of 55, and much can be learned from the first cohort of decision-makers who are forging new paths through the complexities and challenges of this new landscape. Our early studies clearly showed that pension freedoms have switched the mental accounting of DC pensions from a future retirement income choice to a consumption choice. We identified the
decoupling of the decision to take tax-free cash - often seen as a ‘no brainer’ by members - from deciding what to do with the remaining 75%. This second decision is, understandably, widely recognised to be much more difficult.

There is much concern in the industry about designing ‘sustainable withdrawal rates’ and ensuring members have an income for life. But in reality, members seem to be choosing a very different path. While the FCA retirement market data paints a clear picture of what people are withdrawing, there is very little which provides robust insights into why they are behaving in this way or indeed, whether these withdrawal rates are rational given their household circumstances. Our new research fills this important void in our understanding by focusing on the decision-making processes of those in drawdown who are close to, or actually in, full retirement.

Research objectives and methodology

This is the third wave of our longitudinal study, which began in 2015. Five years ago, many of our respondents – particularly those who simply took their tax-free cash and left the rest in zero income drawdown - were still working and thoughts of full retirement were quite far away. Over the years, we have found that not much had changed and they had no need for further withdrawals; either the initial sum was still being spent, or they were receiving an income from work which covered their needs. But five years on many of our respondents have now reached an age where they need to live off their DC pension money is becoming real - either through their own choice to stop working completely, or due to the current economic climate. Our one-hour online in-depth discussions explored in detail the plans they have for their lives and money, and how have they come to these decisions.