Thirty per cent of UK defined contribution (DC) scheme members would prefer a collective defined contribution (CDC) decumulation option at retirement rather than annuity or drawdown, according to research from Aon and Aegon.

As reported by our sister publication Pensions Age, the study was designed to test savers’ appetite for CDC compared with annuity and income drawdown decumulation options, and aimed “to emulate the thought process that people go through when considering different trade-offs and features,” Aon partner and head of UK retirement policy, Matthew Arends, said.

Respondents were first asked to say whether they preferred the option of an annuity or income drawdown. At that stage, the majority (67 per cent) favoured the income drawdown option, and 33 per cent chose annuity.

The group was then split into two groups, with one group asked to choose between either annuity and the features offered by CDC, while the other group was asked to choose between income drawdown and CDC.

Those who previously preferred annuities were split roughly down the middle, with 51 per cent remaining in favour of annuities and 49 per cent switching to CDC.

Of those who had expressed a preference for income drawdown, 79 per cent stuck with their first choice, and 21 per cent said they would prefer a CDC option.

Overall, 30 per cent of savers said expressed a preference for CDC.

Arends commented: “Almost a third of respondents expressing a preference for a CDC pension in retirement represents a significant proportion of DC retirees.

“Although annuities have become cheaper since the survey was conducted, I think we can still expect a CDC pension to be relevant to many.

“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.”

Aegon pensions director, Steven Cameron, added: “As automatic enrolment matures, more [DC members] 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’ (DWP) intention to advance a new ‘third choice’ of decumulation-only CDC arrangement.

“With the CDC concept appealing to almost half of those currently attracted to annuities and to almost one in five currently favouring income drawdown, this is certainly worth the DWP exploring further.

“However, we envisage it as an option for the individual to select, not as any form of default retirement product.”

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