A 'fragmented and inconsistent' guidance and advice landscape for defined contribution (DC) savers in retirement leaves them uncertain about their options, risking uninformed decisions and poor outcomes, a report from the Pensions Policy Institute (PPI) has suggested.

The first in a series of reports examining what an assessment of Value for Money (VfM) could look like in the decumulation stage of retirement, it found that saver support was 'lagging', with most schemes offering no structured retirement income options, leaving members to make complex decisions alone or transfer out of scheme.

Instead, several different types of organisations, such as pension providers, employers, and financial advisers, provided guidance and information to pension savers in retirement, creating overlap and duplication between sources and variation in the quality and clarity of communication.

The report argued that the fragmented landscape of pension guidance underpinned an 'evidence gap' in understanding how individuals engage with information.

It said the main gap lay in decision-making behaviour - whether individuals understood their choices or made suboptimal decisions due to inconsistent communication.

Its research showed that where savers had made an active choice, this has typically been to withdraw their whole pension pot as cash.

However, this behaviour may be sub-optimal for many, particularly if the funds are transferred into low-yield cash savings accounts rather than invested in a product aligned with long-term retirement income needs.

Indeed, a survey of DC pension scheme members found that 42 per cent of savers accessed their pension simply to obtain the tax-free lump sum; 50 per cent of savers stated they would not have withdrawn their lump sum if it had not been tax-free, and 50 per cent of savers reported that they withdrew more than they needed at that time.

In addition, most savers remained with their existing provider when purchasing drawdown products, limiting competition and potentially missing better-value options, according to the research.

Consequently, the report suggested that while choice was important, many pension savers would benefit from more structured defaults that supported sustainable income withdrawals and enhanced value for money (VfM).

It noted that experts agreed that decumulation pathways could help disengaged savers, especially as demand for retirement solutions increases.

The report proposed a potential model that combined 'traditional' products in early retirement with annuitisation or another form of secure income in later life.

However, it warned that these solutions must be implemented carefully to reflect the diversity of saver circumstances, and to provide meaningful off-ramps for those who wished to take more control of their choices.

The next phase of the research will build on the insights from this report by examining whether the current VfM framework for accumulation could be expanded to include retirement income or if a distinct framework is more appropriate.

It will also explore what elements, such as new defaults, support structures, or regulatory reforms, might be needed to ensure all savers get the best possible value in later life.

PPI senior policy researcher, Mariana Garcia Requejo, said the research marked an "important first step" in defining what "value" might look like in decumulation.

"The development of a more comprehensive evidence base is highlighted as both a challenge and an opportunity," he continued.

"Setting the direction for what data is relevant for the market to collect could guide us to the evidence needed to improve saver outcomes."

Requejo noted that as DC pensions become the primary source of private retirement income, it was increasingly important to support savers in making sustainable choices.

"This report sets the stage for the second in the series, due later this year, which will explore future opportunities to design a more effective retirement income market that can provide VfM for all savers," she concluded.

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