08 June 2017

The rise of DC: The 'Decision Citizen' - Royal London

4 min read

Steve Webb
Royal London



New research sponsored by Royal London has found huge variations in retirement outcomes for future generations based on the choices they make in a world of Defined Contribution saving.

In a world of Defined Benefit pensions, individuals had few decisions to make and their retirement outcome was highly predictable. But new research, undertaken by Milliman for Royal London, shows that the move to DC creates a world of ‘Decision Citizens’ – people who have to make choices throughout their working life and into retirement which will have a big impact on their standard of living.

The report finds that the role of impartial advice in supporting those - often complex - decisions will be crucial. The analysis looks at four different groups of people - those who are ‘comfortable’, ‘managing’, ‘squeezed’ or have ‘limited choices’. For each segment, a case study is chosen of someone aged 30, 40, 50 and 60, giving a total of sixteen case studies

For the sixteen case studies, which represent a broad spread of the population, key findings are:

  • Over two thirds look set to have to significantly reduce their standard of living on retirement;
  • Nearly half are reliant on the state pension to fund some of their ‘essential’ spending;

Individual case studies highlight the impact of alternative decisions at key life stages. These include:

  • A family aged 30 who opt out of automatic enrolment when employee contributions reach 5% in 2019 and do not resume saving until they are 55 would see a 69% fall in their private pension income in retirement;
  • A family who review their pension contribution rate on starting work with a new employer offering a generous ‘matching’ contribution finds that a £1,600 increase in annual employee contributions generates an extra £6,900 income in retirement;
  • Regular modest increases in contribution rates throughout working life produce a much bigger savings boost than a large increase later in life; key life events such as children leaving school or moving out of a family home can provide opportunities to review contribution rates;
  • The lifetime self-employed who never fall within the scope of automatic enrolment could end up around £3,800 per year worse off in retirement than an employee with the same pre-retirement income;

Commenting on the results, Ronnie Morgan, Strategic Insight Manager at Royal London said:

The world of DC pensions is a world of ‘Decision Citizens’ – people whose choices during their working life can profoundly affect their quality of life in retirement. Regularly reviewing workplace pension contributions and increasing them ‘little and often’ is a far better strategy than hoping to make up for a lifetime of under-saving close to retirement.

‘This research shows very clearly how many people could be heading for disappointment in retirement unless they get the advice and guidance that they need to make good financial decisions throughout their working lives’.

- ENDS -

For further information please contact:

Royal London Press Office

Notes to editors:

  1. The full report is entitled: “The rise of DC: The Decision Citizen’ and is available at www.milliman.com/royallondon
  2. For each case study, a set of realistic assumptions is made about their family circumstances and financial choices, with estimates being made of their living standards in retirement in each case.

About Royal London:

Royal London is the largest mutual life, pensions and investment company in the UK, with funds under management of £117 billion, 8.8 million policies in force and 3,745 employees. Figures quoted are as at 30 June 2018.