Making DC Pensions Truly Deliver for Members

In a recent discussion with Asset TV, I was asked a fundamental question: are defined contribution DC pensions broken or are we simply not using them properly?

The DC system is fit for purpose. But like any well-designed machine, it only delivers if its key components are working at full strength.

For DC pensions to deliver good retirement outcomes, three things must happen:

1. Members must contribute enough and early enough.
2. Those contributions must be invested effectively.
3. Members must make informed decisions at key life stages, especially at retirement.

If we get those three elements right, the framework works. The problem is that too often, we do not.

The Contribution Challenge: Starting Too Late

The most persistent issue is under saving, particularly in the early years.

Many members simply do not contribute enough, soon enough. They underestimate the power of employer matching and the compounding effect of long-term investment. I regularly see members who leave valuable employer contributions on the table or delay increasing their payments, not fully appreciating how much difference those early years can make.

Education is crucial. The better employers I work with are actively encouraging members to max out employer contributions. But engagement remains patchy and that is where trustees and providers must step up.

Investment: No Free Lunch in Private Markets

Once contributions are in, they must be invested wisely.

There is growing interest in private markets, infrastructure, private equity and private credit – and rightly so. These asset classes can offer diversification and potentially enhanced long-term returns. But we must approach them with discipline.

Private markets are not a panacea. They involve a wide range of managers, fee structures and risk profiles. There will be winners and losers. If trustees allocate to these areas, it must be done with precision, choosing the right assets, at the right time, with the right managers, and with fees carefully controlled.

Used thoughtfully, private markets can enhance outcomes. Used indiscriminately, they can erode them.

A Knowledge Gap We Cannot Ignore

One of the most sobering aspects of trustee work is hearing directly from members. Through focus groups and call listening exercises, I have seen firsthand how limited pension understanding can be. Some members do not fully realise they are even enrolled in a pension scheme. Many do not understand how DC schemes work. That is our starting point.

Before we talk about optimal contribution rates or asset allocation strategies, we must first help people understand the value of having a pension at all.

The Future of Engagement: Personalisation at Scale

Traditional pension communications, a paper statement once a year, are no longer enough.

Members need communications that are timely, relevant and personal. At IGG we work with likeminds to make this happen.

Think about how streaming platforms tailor recommendations based on your viewing habits. Pension communication will not match that sophistication overnight, but the direction of travel is clear. Providers are investing heavily in digital engagement tools, AI driven analytics and behavioural nudges that respond to how members interact.

In one master trust scheme I chair, we are developing an app that tracks engagement with communications and nudges, mapping an individual journey from enrolment to retirement. The goal is to create a personalised pathway, one that adapts over time. It’s still early days, but this is the future.

The Real Test: Decumulation

If accumulation is about discipline, decumulation is about judgement.

When members reach retirement, they face complex, often irreversible decisions: Should they buy an annuity? Enter drawdown? Take cash? Combine approaches?

People’s circumstances differ widely, including their health, family situation, assets and appetite for risk. In an ideal world, every member would have access to a personal adviser to guide them through this moment. In reality, scale and cost constraints make that impossible.

This is the industry’s Holy Grail: how do we deliver genuinely personalised guidance at an affordable cost to millions of members?

Here, technology may offer part of the solution. Not robots replacing advisers, but AI and robo advice systems enabling advisers to serve more people efficiently. Scalable, intelligent support that gives members enough confidence and clarity to make good decisions.

Because while digital nudges and articles help, at the point of retirement people want reassurance, and someone or something credible to guide them.

This is today’s problem, not tomorrow’s. Some might argue that decumulation can wait, and that schemes with younger demographics have time on their side. I do not agree.

Very few schemes consist entirely of 30-year-olds. Across most arrangements, members in their 40s, 50s and 60s are already approaching retirement. Regulators and government recognise this urgency and so must trustees.

We cannot kick the can down the road.

The Bottom Line

DC pensions are not broken. But they require active stewardship:

• Encourage higher contributions, earlier.
• Invest intelligently and cost effectively.
• Personalise communication and support.
• Solve the decumulation challenge with scalable advice solutions

If we can align those elements, DC pensions can deliver what they were designed to deliver: good, sustainable retirement outcomes for members.

At Independent Governance Group, we help trustees, employers, and providers create strategies that improve member outcomes, supporting better retirement decisions.

If you’d like to learn more about how we can help your scheme, get in touch with us.

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