Almost one-third (30%) of UK defined contribution (DC) savers said they prefer a collective defined contribution (CDC) pension for a decumulation option at retirement instead of an annuity or drawdown, according to new research.
Global professional services firm Aon and financial services provider Aegon’s new whitepaper Collective DC decumulation – is there demand? was based on a survey of 1,150 respondents. The findings highlighted that 33% of participants initially preferred the option with features of an annuity, compared to 67% who preferred income drawdown features before viewing CDC pension information.
Those most likely to choose an annuity (42%) were of lower than average wealth and were more dependent on a state pension, meanwhile CDC pensions were less likely to be chosen by those with higher than average levels of wealth.
Among those whose initial preference was the annuity option, 49% preferred the CDC pension after viewing the full trade-off series, while 51% still preferred an annuity. Among those who initially preferred income drawdown, 79% preferred income drawdown after viewing the full trade-off series, while 21% then preferred the CDC pension.
Those who preferred annuities over CDC pensions cited the lower risk of an annuity as their reasoning. Those who preferred income drawdown stated this was due to wanting to provide for a partner or enable their family to inherit their savings when they die.
Matthew Arends, partner and head of UK Retirement Policy at Aon, said: “Almost a third of respondents expressing a preference for a CDC pension in retirement represents a significant proportion of DC retirees. Consequently, decumulation-only CDC could be an attractive third option for DC savers, providing a distinctive alternative to annuities and income drawdown and addressing the underserved needs of a group of savers.”
Steven Cameron, pensions director at Aegon, added: “There are many millions of members of DC schemes who face making future choices about retirement income. As automatic enrolment matures, more will have substantial pots at retirement and choosing well will be increasingly key to making the most of retirement. Our research findings support the Department for Work and Pensions’ intention to advance a new third choice of decumulation-only CDC arrangement.”