Clearer, simpler, and more personalised support is needed for those nearing retirement due to a limited understanding of defined contribution (DC) pension decumulation beyond the tax-free lump sum, according to a report commissioned by the Department for Work and Pensions (DWP).

The research aimed to understand how people make decisions about accessing DC pension pots, drawing on interviews with respondents aged 53 to 67.

It found that while some felt confident and prepared to make decumulation decisions, many experienced uncertainty, confusion, and anxiety, particularly around complex decisions such as drawdown and annuities.

Understanding outside the tax-free lump was limited, reducing capability to make decisions, undermining confidence, and resulting in avoidance of decision making.

The report argued that there was a strong need for clearer, simpler, and more personalised support, alongside earlier and more accessible financial education.

“Improving capability, confidence and access to trustworthy information can help individuals to make well informed decisions and support more positive financial outcomes,” the report stated.

The report also highlighted considerations for future policy development, including improving the accessibility and capability around pension decumulation decision-making by simplifying how pension access options, charges, risks and trade-offs are explained.

Increasing the visibility and appropriate use of free guidance was recommended to support informed and confident decumulation decisions, alongside providing trustworthy support that people can interpret based on their individual circumstances.

“This could include helping people to access impartial guidance, and interventions that help them interpret their circumstances and pension options at a high level, while signposting to financial advice where a consumer can receive a recommendation of what to do,” the report said.

The paper also called for recognition of how personal circumstances shape decumulation behaviour, which would include policy and support that reflect the impact of health, caring responsibilities, employment and relationship changes, and financial insecurity.

Finally, the report argued that the earlier introduction of consistent financial education and engagement would support longer-term decision making and reduce reliance on reactive choices at retirement.

“Understanding of pension access routes varied considerably,” the paper noted. “The 25 per cent tax-free lump sum was the most widely understood and often the only option respondents felt confident about.

“Knowledge of drawdown, annuities, fees, charges and investment risk was generally low, with many struggling to differentiate between products or assess long-term implications.

“While most understood that DC pots were invested, only a few actively engaged with investment decisions.

“Confidence mapped closely onto understanding. Respondents fell broadly into low, partial and high confidence groups. Low-confidence individuals tended to avoid engaging with pensions due to anxiety and limited knowledge.

“Those with partial confidence understood the basics but struggled with more complex decisions and often delayed taking action, whereas high-confidence respondents were proactive and more able to evaluate options.

“Respondents expressed a need for clearer and simpler information that was more personalised.

“Overall, respondents felt that improving understanding, capability and access to trusted support would help them make more informed decumulation decisions.”

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