Headline income uplifts from collective defined contribution (CDC) pension schemes risk oversimplifying potential benefits for members, as factors such as income certainty, flexibility and inheritance also need to be considered, Hymans Robertson has warned.

In its latest paper, How much?! Looking beyond headline CDC uplifts, the consultancy argued that focusing on a single uplift figure could give a misleading picture of CDC's value compared with other retirement options, such as annuities and drawdown.

The research suggested that CDC could deliver an average income uplift of 30 per cent compared with an annuity, but that in the worst 5 per cent of modelled outcomes, an annuity could instead provide 20 per cent more income.

Hymans Robertson explained that while CDC offered the potential for higher retirement incomes through investment returns and risk-sharing, annuities provided greater income certainty.

As a result, each option's relative attractiveness would depend on members' individual circumstances, risk appetite, and ability to withstand reductions in retirement income.

The comparison with drawdown was even more complex, with the paper suggesting that CDC could deliver 15 per cent to 50 per cent higher income, depending on the level of risk assumed in the drawdown comparison.

However, the consultancy stressed that these figures were illustrative, not forecasts, and that the results depended heavily on the assumptions and measures used.

It also highlighted the importance of flexibility and inheritance, noting that while drawdown generally allowed members to pass on remaining pension savings after death, CDC relied on pooling assets to support lifelong incomes for surviving members.

Hymans Robertson therefore called for a broader assessment of retirement outcomes, arguing that members, trustees and employers could reach different conclusions about the relative benefits of CDC depending on their priorities.

Hymans Robertson head of CDC, Lauren Branney, said: "A potential 30 per cent uplift from CDC has huge appeal, but it is important that this figure isn’t considered in isolation.

"There isn’t one answer to how much better off a member could be under CDC. It depends on what you compare it against, the member you are looking at and, importantly, what you mean by a good outcome."

Branney explained that focusing on average outcomes could favour CDC, while considering more adverse scenarios could make annuities appear more attractive.

"The comparison between CDC and drawdown is even more complicated with considerations needed around flexibility, inheritance and risk, and different members will place different value on each of these," she continued.

"A single headline uplift can only tell part of the story."

The consultancy also highlighted CDC's potential role in developing guided retirement solutions, suggesting providers could consider it a default option for members seeking a sustainable income for life.

However, it argued that improving retirement adequacy would require schemes to consider a wider range of retirement solutions rather than focusing solely on the potential income uplift from CDC.

"The question of how CDC fits into the broader retirement market must be explored," Branney continued.

"CDC can improve adequacy and may be a good solution for members wanting an income for life. As such, we may see a number of providers using CDC as their default guided retirement solution.

"More generally, having a wider range of retirement options available to individuals should enable more members to choose solutions that meet their own needs."

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