‘The re-birth of pensions’ – Optimising Future Pensions, Phase II research

Investment in Pensions

Professor Catherine Donnelly of Heriot-Watt University writes on Phase 2 of the ARC commissioned research programme to develop innovative new pension structures.

Pension actuaries should `lean in’ to make a difference to millions

‘A pension decumulation crisis is slowly raising its head to roar in the UK.  How will the millions of people saving into workplace pensions manage their money in retirement?  Few people buy life annuities.  Yet do they have the skills and knowledge to make income drawdown work for them?  My answer is, resolutely, they don’t, since I myself would struggle to make the far-reaching decisions inherent in income drawdown. 

I have a message: It doesn’t have to be this way.  Our research team at Heriot-Watt University will show how innovative new pension structures can work for the benefit of people and will discover their theoretical limitations.  The focus is on longevity and investment risk-sharing, and how and when these can work for members.

One stream of work focuses on pooled annuity funds.  They are like life annuities but without the full suite of guarantees.  These types of funds could be offered as a post-retirement collective defined contribution (CDC) scheme as a master trust, with members funnelled from existing defined contribution (DC) schemes.

We will examine some of the issues around pooled annuity funds.  How well do these funds deliver a stable income to their participants in the presence of longevity and investment risk?  Can they deliver a bequest?  What happens when they close to new members?  Answers to some of these questions will be presented in a forthcoming IFoA webinar in February 2022, with further answers presented at later dates. 

The second stream looks at a model of the Royal Mail CDC scheme.  In this scheme, soon to be made real, both longevity and investment risk are shared among members.   But what’s going on under the bonnet?  What happens if returns are worse than expected?  And people live longer than anticipated?  Does the Royal Mail CDC structure work for any membership profile?  Our research will address these questions and more.  Preliminary results will be presented at an IFoA webinar in February 2022, again with a series of webinars to follow.  

Scientific rigour, openness and engagement with IFoA members are essential in building knowledge and understanding of these pension structures.  All our work will be published in open access form, both research papers and the corresponding software programmes.

`Lean in’ was the term invented by Sheryl Sandberg and popularised in the eponymous book.  Rather than focusing on what we can’t do for people, let’s see what we can do for them.  Let’s build a better pension journey.  Please join us for a discussion around our work at the IFoA-hosted webinars which will take place in February 2022.

The Optimising Future Pensions Phase 2 research programme has been commissioned by the IFoA’s Actuarial Research Centre (ARC). It forms part of a portfolio of research and outreach work that the IFoA are engaged in looking at the future of pensions, such as the ‘Great Risk Transfer’ campaign, the RSA CDC forum, the IFoA CDC working group and ongoing engagement with DWP and TPR.

For more information on the programme please follow our LinkedIn page and #ARCfuturepensions

The IFoA webinars will open for registration nearer the time and will be added to the IFoA event calendar. IFoA members will also be notified via email when registration opens.


Professor Catherine Donnelly, Principal investigator.

Prof.Catherine Donnelly is a Professor in the Department of Actuarial Mathematics and Statistics at Heriot-Watt University and is Director of the Risk Insight Lab. Prof. Donnelly is a qualified actuary who has previously worked in the pensions industry. She has a PhD from the University of Waterloo, Canada, an MSc from the University of Oxford and a MA from the University of Cambridge. Her research interests lie in pensions and life insurance, and she has published widely in these areas.  She was a member of the USS Joint Expert Panel in 2018.  Prof. Donnelly has a keen interest in developing workable solutions to improve people’s financial situation in retirement.