Decisions in the dark: How the DC pioneer generation are navigating retirement income decisions

Overview

Retirement in the UK is changing. The shift from Defined Benefit (DB) to Defined Contribution (DC) pensions, combined with pension freedoms, longer working lives and a rising state pension age, means individuals now shoulder more responsibility and risk of securing a comfortable retirement than ever before. This is a new and growing phenomenon, around six in ten 55-64 year olds have some DC pension wealth, up from a little over four in ten 15 years ago.

This report explores the decisions, emotions and behaviours of people aged 55-70 as they navigate a changing retirement landscape.  Those relying more on DC than DB pension pots are the early pioneers of a new type of retirement one defined not by a single event, but by a prolonged period of complex decision-making.

Drawing on behavioural insights and in-depth interviews, the research reveals how psychology influences retirement decisions, and how policymakers and the pension industry can support people to balance peace of mind with flexibility.

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Key findings

• Peace of mind often outweighs financial optimisation. Fear of running out of money is widespread. Many prioritise security and certainty – such as paying off a mortgage – to gain peace of mind, even where this may not be the most financially optimal choice.
• Flexibility is valued, but also overwhelming. The ‘double-edged sword’ of flexibility was a recurring theme, pension freedoms are welcomed, but the responsibility to make complex decisions creates stress, particularly for those with lower financial confidence. Many try to "clear the decks" by paying off debts or consolidate pension pots to regain a sense of control.
• Psychology plays a major role in decision making. Choices are heavily influenced by behavioural biases. Loss aversion drives resistance to annuities, social proof leads people to rely on friends and family when making decisions, and mental accounting shapes how tax-free cash is viewed and used.
• The 25% tax-free lump sum is a powerful anchor. This remains the most understood and valued aspect DC pensions. Most people took the full amount often while still working and typically think about it differently from the remainder of their pensions savings. Many earmark it for a specific purpose, such as to pay off a mortgage.
• Low trust and complex language are major barriers. Respondents feel alienated by complex pension jargon and are sceptical of pension providers motives. Official sources like government websites are seen as too generic, pushing people to rely on informal networks instead of trusted, professional support.
• Retirement is seen as a journey, not an event. Many look forward to working less and having more time for themselves and their families, but the desire is overshadowed by uncertainties. Many adopt a “stepping stones” mindset, making the process feel more manageable, with State Pension acting as an important future “step” on the journey.

Lessons for policymakers and the industry

• Better support is urgently needed for decision making in conditions of uncertainty, low confidence and high anxiety.
• Targeted Support and Simplified Advice could help close the decision support gap, especially for single households and those with lower confidence.
• Ongoing review during retirement is a core element of the ‘stepping stone’ journey. Policy and support services should be designed to allow adjustments in decumulation choices while promote long-term outcome.
• Retirement solutions must balance security and flexibility, avoiding overly cautious defaults while offering reassurance.
• Rebuilding trust is critical. Clearer language, personalised support and tech-enabled services will be key to empowering better decisions.

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As DC pensions become the primary way to fund retirement for many, supporting better decision-making has never been more important. This research highlights the real-world experience of making retirement decisions for today’s DC savers, and the opportunity for policymakers and the pensions industry to build greater confidence, trust and security for the generations ahead.

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