16 Apr 2021 3 min read

2020 in review: DC member behaviour in the age of COVID-19

By SuAnn Song , Alexandra Miles

We take a closer look at how the pandemic has affected the retirement decisions of the four million members in LGIM’s DC pension book.



Following the five-year study of retirement choices which we published last year, we’re back with a 2020 update.

2020 was a big year for many reasons and left us with more questions than answers – not the most welcomed sentiment in the retirement landscape. Our latest insights hopefully provide some comfort that while COVID-19 created huge dislocations economically and socially, the retirement market suffered little disruption and continues to evolve in line with our expectations.

Some key takeaways are that cashing out remains our members’ favourite option, while those with large pots (greater than £150,000) tend to favour drawdown.

No matter what choice they are making at retirement, members are accessing their pots later, in line with our expectations that people will stay in employment for longer and retire later.

Average pot sizes fell slightly in 2020, as might be expected given market conditions. However, members approaching retirement had typically started de-risking into defensive assets such as cash and bonds, which provided some insulation from the worst of market drawdowns.

Cash is still king – but not forever

Member behaviour towards cashing out their pots continued to develop as expected. Most members accessing cash have small pots (averaging just under £8,000) and do so on average at age 61. As the DC market develops, we would expect to see average pot sizes increase and cashing out at retirement lose some of its appeal. In its stead, we would expect to see regular drawdown and annuitising become commonplace, as members seek regular income, whether it is guaranteed or flexible to their circumstances.

Annuities’ place in the sun

Member behaviour towards annuitising has also continued to develop as expected. Members annuitise on average at age 64, with an average pot size of just under £45,000; half retire with small pots. While the demand for annuities has seen better days (prior to Freedom and Choice), we believe that they still have a place later on in a member’s retirement journey. Members prioritise having the freedom to spend in the earlier stages of retirement, but this preference switches to an increased need for financial certainty later on.

More drawdown incoming

Members choosing drawdown have much larger pots, with the average at just over £80,000. They also crystallise their pot the earliest, on average at age 60.

Encouragingly, the sustainability of drawdown pots is improving – the average number of payments taken before pots are exhausted has climbed from around two to about 12 for medium/large pots over the past six years. As pot sizes grow, we expect the number of payments before the pot is empty to grow in tandem, as pots become a more sustainable source of income over time.

For members who have been in regular drawdown for some time, the average withdrawal rate has been relatively stable, at 0.9% per month. Interestingly, the average withdrawal rate for members with small pots has been trending upwards, while the number of payments taken prior to pot exhaustion has remained fairly consistent over recent years. This makes intuitive sense, as pot sizes have increased over time. Members with small pots are continuing to use these as a ‘top-up’ source rather than a regular source of income.  

In our next blog, we will bring you the highlights from one of our special insights for 2020 – a look at the impact of gender on retirement choices. There has been lots in the press about the gender pay gap, but how large an issue is it?

SuAnn Song

Solutions Strategy Manager

Su focuses on developing investment solutions and thought leadership for DC clients. She joined LGIM in January 2019, having previously been an investment consultant at PwC, where she worked with pension funds, charity and university clients in formulating investment strategies and portfolio modelling.

SuAnn Song

Alexandra Miles

Senior Solutions Strategy Manager

Alexandra works with our DB and DC clients to implement broader solutions based investment strategies. Alexandra joined LGIM as an LDI & Solutions product specialist in 2014 from Willis Towers Watson where she worked in both the Benefits and Investment strategy teams. Alexandra has an MEng in Aeronautical Engineering, an MSc in Actuarial Finance and is a Fellow of the Institute of Actuaries

Alexandra Miles