Greater innovation in the options offered by providers and financial advisers to pension savers could increase their retirement income by 20 per cent, research from Hymans Robertson has suggested.

The provider argued that this would be a "lifeline" for those reaching retirement with less savings than required, with Hymans Robertson senior partner, Jon Hatchett, warning that "millions" in the UK are heading towards retirement outcomes that are worse than their parent’s generation.

Indeed, the research showed that an average earner contributing the auto-enrolment minimum level of 8 per cent only has a one in three chance of achieving the moderate standard under the Pensions and Lifetime Savings Associations' Retirement Living Standards.

"Each year, UK retirees are ever more reliant on DC pensions," he continued. "For most this income will be insufficient as they haven’t saved enough, and are unlikely to be able to, even if they increase their contributions now."

Given this, Hymans Robertson's report, Risk sharing: an age-old solution to an age-old problem, urged the industry to adopt risk sharing options that could increase the sustainable income people can draw from their pension pot, allowing them to plan their spending with confidence and reduce the risk of running out of money.

Whilst Hymans Robertson acknowledged that some of these ideas, such as annuities and income drawdown, are tried and tested, it noted that others, such as collective defined contribution (CDC) are just emerging, and more, including longevity pooling and deferred annuitisation, are yet to be developed.

It also suggested that a number of these different approaches could be blended together when being developed.

"It might be too late for those in their 50s and 60s to save enough, but not too late for the industry to help," Hatchett stated, "Risk sharing can allow these people much better ways to manage the uncertainty of how long they will live, and for those that choose to prioritise spending while they are alive, increase their income in retirement by around 20 per cent.”

Adding to this, Hymans Robertson head of DC markets, Paul Waters, argued that there should be a “real onus” on providers, regulators and the wider pensions industry to focus more resources to develop ways to help DC members with this problem and to help them extract more value from their DC savings.

“But the clock is ticking,” he warned, stressing that to help members who are really going to need the increased income, “the work now must be done now”.

He continued: “Many members in this position will have moderate incomes and not be able to access advice. So, the industry must provide defaults that don’t require active engagement in the decision making by the member.

“Providers and the pensions industry need to quickly develop some of the ideas that are emerging into tangible solutions. This will deliver retiring DC savers increased incomes when they’ll need it.

“Risk sharing presents an opportunity for the industry to do this. The various flavours of risk sharing must be supported with innovative thought and investment.

"With just a little more work by providers and schemes to design and implement new ways for DC pensions to be accessed, this problem could be solved. While CDC is one approach, it is not the only answer.

“Other options are available that have the potential to deliver more value to savers, at arguably lower long-term risk, and can be implemented today. The government and regulators’ single-minded focus on CDC risks missing the bigger picture.

“As an industry, we cannot afford to get this wrong for savers.”

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