Retirement CDC: The next big step for UK pensions

WTW followed a keynote from Torsten Bell, who reiterated the Government's continued commitment to Collective Defined Contribution (CDC) pension provision and confirmed that "we will bring forward the legislation for Retirement CDC this year", laying the foundation for the introduction of a great new solution to the DC decumulation challenge.

Against that backdrop, Edd Collins and Keith McInally from WTW were delighted to present on Retirement CDC, alongside Bryony Halliday, Retirement CDC Policy Lead at the DWP, whose strong support underlined just how aligned industry and policymakers now are on this topic.

Why decumulation is DC's weakest link

DC accumulation has come a long way: auto-enrolment contributions, scale, low charges, diversified growth assets, private markets investment, and increasingly sophisticated default strategies. But retirement remains the weak spot.

At exactly the point when decisions matter most, members are faced with complexity, uncertainty and responsibility, often with limited support. Traditional retirement options force difficult trade‑offs between security, flexibility and value for money.

That is why the forthcoming Guided Retirement requirements are so important. Defaults in retirement are coming, but what should those defaults look like?

A new era for DC pensions

The DC retirement landscape is expanding beyond the binary choice of annuity or drawdown. Two newer solutions are gaining traction, with distinct member journeys:

• Flex then Fix – typically drawdown in early retirement, followed by annuity purchase later in life
• Retirement CDC – converting a DC pot into a pension at retirement, with variable income paid for life and adjusted each year to reflect the experience of the scheme

Both aim to deliver lifelong income, managed on behalf of members and chosen by trustees. But they are not equal in terms of outcomes.

Higher expected incomes

One chart in particular resonated with the audience.

Using consistent assumptions, our analysis shows that Flex then Fix is expected to deliver 25% higher incomes than annuity purchase, but Retirement CDC goes even further with 40% higher expected incomes.^[1]

Where does the difference between Flex then Fix and Retirement CDC come from?

Investing for growth for longer

Retirement CDC allows members to remain meaningfully invested in growth assets well into retirement, rather than de‑risking sharply to match annuity pricing. Given retirement is often expected to last 20‑25 years, this matters enormously.

We would expect that under a Flex then Fix approach, members would typically be invested in growth assets in early retirement in a similar manner to Retirement CDC. However, this exposure would then reduce more rapidly over time. Assets would be shifted into lower-risk investments, ahead of ultimately being converted into an annuity and so, by later life, investment risk is largely removed.

This also has consequences pre-retirement. Targeting Retirement CDC at retirement removes the need to de-risking as you approach retirement to hedge annuity purchase. Members can remain in growth assets pre-retirement to align with the start of the post-retirement strategy. This alone has a 15% impact on expected outcome.

What about risk and fairness?

Two concerns often surface: volatility of income and intergenerational cross‑subsidy.

In a well‑designed Retirement CDC scheme, annual income adjustments reflect actual experience (up or down) but the risk‑return trade‑off remains broadly consistent across ages. New retirees are not subsidising older members; they are taking investment risk appropriate to their longer time horizon and being rewarded with higher expected returns.

Keith talked through an example considering a scenario where investment returns were higher than expected, leading to a 1% higher pension increase.

While this increase applies to all members, its impact differs by age because it is expected to be applied every year in future.

A younger pensioner will see a larger overall benefit from this increase because it applies to a longer stream of future payments. In simple terms, they are expected to receive more future increases.

An older pensioner, with fewer remaining payments, sees a smaller overall impact. The same increase still applies each year, but for a shorter period of time.

This is not a transfer of value between members. It reflects the length of time over which the increase is applied.

Crucially though, the balance between risk and expected return remains consistent across members. Those younger members with greater exposure to investment risk and a greater assumed investment return receive greater upside when returns are strong, while those older members with less exposure experience smaller changes.

From concept to delivery

Bryony Halliday closed the session by outlining progress on the legislative framework, reinforcing the DWP's commitment to making Retirement CDC work in practice. With draft legislation expected this year, the conversation has shifted decisively from "if" to "how".

For trustees, providers and policymakers alike, the opportunity is significant: Retirement CDC is a new retirement solution that offers higher expected incomes, longevity protection, and pensions that are truly "done for you."

After years of debate, Retirement CDC is no longer theoretical. It is fast becoming the next big step for UK DC pensions.

Reflecting that shift from concept to delivery, LifeSight, WTW's £30bn DC master trust, has confirmed its intention to launch a Retirement CDC solution as soon as the UK regulatory framework allows.

Footnote

1. "A new era for UK DC retirement solutions," WTW, March 2026. Return to article undo