The UK's shift from defined benefit to defined contribution pensions has transferred difficult retirement decisions from employers to individuals. A “flex-then-fix” framework divides retirement into two broad stages, matching drawdown to the flexible expenditure of healthier, more active years and lifetime income to the essential expenditure of later life.
This article was written based on a research paper as part of the RGA Leaders of Tomorrow program.
From one perspective, these are not the best of times for the UK’s soon-to-be retirees.
For much of the past century, retirement followed a familiar pattern: Workers spent decades accumulating pension benefits, reached retirement age, and transitioned into a predictable stream of income that resembled the paycheck they had received during their working lives.
That framework made sense in a world dominated by defined benefit (DB) pensions. Employers and pension schemes assumed much of the responsibility for investment performance, longevity risk, and income provision. Retirement represented a single financial transition, from work to retirement.
That world is disappearing.
The steady shift from defined benefit to defined contribution (DC) pensions has transferred much of the responsibility for retirement planning from institutions to individuals. Today's retirees must decide how to convert a finite retirement pot into income without knowing exactly how long they will live, how markets will perform, or how their spending needs will evolve over the decades ahead.
William Sharpe famously described this challenge as “the nastiest, hardest problem in finance.”1 The description remains accurate.
But the situation is far from the worst of times, and the insurance and financial services industries can act now to ensure a brighter future.
The industry's traditional approach to retirement planning often assumes retirement is one phase requiring one solution. A more useful way of thinking about the challenge may be to recognize that retirement itself evolves. The needs of a healthy 67-year-old are often very different from those of an 87-year-old.
As retirement changes, retirement planning should change as well.
A useful starting point is to reframe retirement as two broad stages.
These descriptions are deliberately broad. No two retirements look exactly alike. Some individuals may spend many years in the first stage, while others may move relatively quickly into the second.
Nevertheless, viewing retirement through this lens acknowledges a fundamental reality: Spending needs, health, and financial priorities change over time.
The distinction is supported by evidence from healthy life expectancy statistics. Many retirees can expect a decade or more of relatively healthy retirement before entering a period in which declining health becomes a more significant factor.3 While individual outcomes vary substantially, especially across socioeconomic and geographic groups, the existence of these two broad phases creates a useful framework for thinking about decumulation.
After dividing retirement into two stages, the next question is clear: Which products best fit each phase?
The proposed answer is a flex-then-fix approach.
The first phase favors flexibility. Income drawdown allows retirees to keep assets invested while accessing funds as needed. For retirees who remain healthy, active, and financially engaged, drawdown resembles the budgeting decisions they have made throughout their working lives. It provides the ability to adjust spending, react to changing circumstances, and maintain access to capital.
Flexibility has value.
A retiree planning an extended holiday, helping a child purchase a home, or responding to unexpectedly high expenses may appreciate the ability to vary withdrawals over time. Drawdown supports this freedom in a way that guaranteed income products generally cannot.
However, flexibility comes with responsibility. The retiree bears investment risk, longevity risk, and the possibility of spending too much too soon. Managing those risks successfully requires ongoing engagement and decision-making.
That reality makes drawdown a strong candidate for the first stage of retirement, but a less obvious fit for the second.
As retirement progresses, certainty often becomes more valuable than flexibility.
In the later stage of retirement, essential expenses continue regardless of market performance. Utility bills still arrive. Groceries still need to be purchased. Housing costs still exist. At the same time, the desire or ability to actively manage a retirement portfolio may decline.
This is where the “fix” component of the framework becomes relevant.
A lifetime annuity converts a portion of accumulated retirement savings into a guaranteed stream of income that continues for life. In exchange for surrendering flexibility and liquidity, retirees gain protection against one of retirement's greatest uncertainties: outliving their money.
Importantly, the flex-then-fix framework does not position annuities and drawdown as competitors. The retirement industry often treats them as opposing choices, forcing retirees into an either-or decision. In reality, the strengths of one product tend to complement the weaknesses of the other.
Combining both over the course of retirement creates the potential for a more balanced outcome than relying exclusively on either product.
Emerging retirement collective defined contribution (R-CDC) solutions may also become part of the future UK decumulation landscape. While these products offer lifetime income, their income levels may fluctuate based on fund performance. For retirees seeking to match predictable expenses with predictable income, annuities currently offer a clearer alignment with later-life spending needs.
If flex-then-fix is the framework, the critical question is determining when the transition should occur.
There is no universal answer.
The timing will depend on health, wealth, spending patterns, market conditions, and individual objectives. However, three useful signposts may help guide the decision.
The question of “when” deserves greater attention from policymakers, insurers, and pension providers. The industry's focus has largely and justifiably been on helping individuals accumulate retirement assets. If people have enough savings, decumulation becomes less of a concern, and if people don’t have enough savings, it can be challenging to find a successful decumulation strategy.
That said, helping retirees identify the optimal point to transition from flexibility to certainty may prove equally important. Further research into discovering this point is an important task for our industry to tackle now.
The UK's retirement system is evolving rapidly. Pension freedoms expanded choice and flexibility, but greater choice has also created greater complexity. Many retirees are now required to solve an extraordinarily difficult financial puzzle with limited guidance in their attempt to create the best of times in their golden years.
The flex-then-fix model offers a simple but powerful reframing of that challenge. Rather than treating retirement as a single event, it recognizes retirement as a journey.
Early retirement often benefits from flexibility and personal control. Later retirement often benefits from certainty and protection.
No framework can fully eliminate uncertainty. Health, markets, longevity, and personal circumstances will always remain unpredictable. Yet retirement planning does not require perfect answers to be valuable and to avoid worst-of-times scenarios. It simply requires a structure that helps people make better decisions.
By aligning retirement products with the realities of how retirement changes over time, flex-then-fix provides a practical framework for navigating one of the most difficult financial decisions individuals will ever face. And as DC pensions continue to expand globally, that framework may become increasingly relevant far beyond the UK.
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