Chart of the month: No free lunch

Our chart shows the 10th, 50th and 90th percentile spending levels, for those who remain alive at each age.

In terms of expected spending, R-CDC delivers an uplift of over 20% relative to an annuity, while Guided Income offers a more modest uplift. 

R-CDC takes more investment risk overall. However, because R-CDC adjusts benefits primarily via changes in the scheme indexation rate, this results in more stable short‑term payments. There is no free lunch, however, as this manifests as greater long-term payment uncertainty. (As you can see, the red funnel is initially narrower than the blue funnel but becomes much wider later). Both R-CDC and Guided Income carry a meaningful risk that spending falls below the level that could have been secured with an annuity at outset.

The final difference we mention concerns control which itself has its pros and cons. Guided Income is flexible – despite guidance, ultimately members remain in charge of both spending and investments and retain bequest potential should they die before annuitisation. Neither the R-CDC scheme nor annuities offer these features. The flipside is that guided income requires ongoing action from members to change their spending rate and potentially annuitise in the future. Some members may prefer a “do it for me” solution.

Results depend on the exact design choices and modelling assumptions, but the chart captures the key trade‑offs. Retirees would like it all – high pensions, flexibility, death benefits and certainty over all timeframes – but in reality these aims can’t all be achieved at once.