Rethinking DC strategy: Simplicity, innovation and the road ahead

• Contributions are paid into an individual account
• The account is invested over time
• The resulting pot is accessed to provide income in retirement

Simple, right? And yet, across the pensions industry, we dedicate immense time, intellectual capital and resource to refining DC strategies. Why? Because the devil is, as ever, in the detail. Outcomes for members vary dramatically depending on plan design, investment pathways, and decumulation options.

This article sets out to revisit three foundational concepts behind strong member outcomes, offer three actionable suggestions that can meaningfully improve those outcomes, and pose three forward-looking questions likely to shape the future evolution of DC strategy.

Three concepts – foundations of better outcomes

1. Contributions: Level and timing matter. The amount saved—and when it's saved—remains the most powerful determinant of retirement adequacy. Early contributions benefit disproportionately from compound returns, while later increases often struggle to catch up.
2. Investments: Growth, risk and journey matter. Asset allocation through the accumulation phase has significant bearing on final pot size. But investment design must now also reflect the shift from annuity-focused "end points" to more complex, fluid retirement journeys.
3. Decumulation: Flexibility and security matter. How pots are accessed in retirement—whether through drawdown, annuities, or hybrids—influences income stability, tax efficiency, and member peace of mind. Retirement is now a phase, not a date.

Three suggestions – practical ideas with transformational potential

1. Auto-escalation: Save More Tomorrow. Despite strong evidence, auto-escalation remains underused in UK schemes. Nudging member contributions upwards annually – say by 1%, up to 10% – can double retirement savings over a career, with minimal impact on take-home pay. The behavioural principle is simple: members rarely opt out of small, scheduled increases once enrolled.
2. Protected equities: A smarter ‘to and through' option. Since the advent of Freedom and Choice, traditional lifestyle glide paths have lost their relevance. Members no longer uniformly purchase annuities; instead, pots may remain invested for decades into retirement. Yet sequencing risk looms large. Protected equity structures offer the appealing prospect of equity-like upside, but with built-in downside buffers – giving members both growth potential and psychological safety.
3. Flexible decumulation: Combine drawdown with annuity optionality. Retirement is personal. Some members crave income certainty; others prize flexibility. Emerging product designs—combining flexible drawdown with the option to annuitise part of the pot at any point—offer a more personalised journey. Schemes and providers that can deliver both income security and freedom of choice will win trust and engagement.

Three questions – What will shape tomorrow's strategy?

1. Will collective DC (CDC) go mainstream? With the first multi-employer CDC schemes entering the market, will scale, smoothing and pooled longevity risk make CDC a viable middle ground between DB and DC?
2. Will AI craft the optimal glide path? Can machine learning harness real-time behavioural and market data to generate dynamic, tailored investment journeys for DC members? Or will trust and governance barriers hold it back?
3. Will ESG stand on its financial feet? With regulatory scrutiny growing, will ESG investing continue to demonstrate risk-adjusted returns strong enough to stand on purely financial justification alone?

Final thought – consolidation from both ends

If the pensions dashboard successfully catalyses bottom-up consolidation by empowering members to manage and merge their pots — and this coincides with top-down consolidation across providers — will the resulting shift serve member interests... or institutional ones?

Simples? Perhaps not. But clear thinking, smart design, and thoughtful innovation could bring us closer to it.

Matthew Webb is the former global head of benefits at London Stock Exchange Group