Speaking at the NAPF Freedom & Choice breakfast seminar, Adrian Boulding explains how a three stage rule could help savers


Intuitively, “freedom” and “choice” sound like positive terms, and the baby boomers the National Association of Pension Funds surveyed agree. In its latest research, entitled The Unpredictability of Retirement, the NAPF spoke to a mix of people from that generation and found that attitudes varied depending on whether the saver in question had already retired.

Those who had tended to view retirement as a time when they were free to do what they wanted and could devote themselves to their families and aspirations. “Scary” was the most common negative aspect offered by those still in work, who feared loneliness, ill health, and low interest rates.

Choice is only really positive if you understand the options you have in front of you.


Too many people will find the plethora of pensions choices bewildering. Many will approach retirement feeling afraid of taking the wrong decision and ruining their long term finances. 

Adrian Boulding, chairman of the Pension Quality Mark has a suggestion to help focus the minds of future retirees. He proposes using consultancy McKinsey’s 3 x 3 rule (which apparently brought us auto-enrolment, courtesy of McKinsey graduate Lord Adair Turner). The three point rule is simple enough:

  • Give people a set of three choices
  • Then another set of three choices (based on the first choice)
  • Followed by no more than a set of three choices


In the pensions context, the first three choices are about retirement income. Any given saver may choose to:


  1. Take it all at once
  2. Leave it all invested and draw a regular income
  3. Give it to an insurance company and get an income for life


Assuming the saver in question chooses the second option the next set of decisions relates to the type of investment fund they want to use:


  1. Low risk, drawing 4% a year
  2. Medium risk, drawing 5% a year
  3. High risk, drawing 6% a year


The final pillar of this structure is about protecting yourself against living so long your pension fund out. The choices now, as Boulding sees them, are:


  1. Make a single payment of £5000 to an insurance company, which will guarantee payments of £200 per month starting at the age of 85
  2. Regular payments of £25 a month to an insurance company, which will again guarantee payments of £200 per month starting at the age of 85
  3. Do nothing and rely on other sources of income


These are choices people should be taking relatively early, and certainly rather before they will need to call on them. This will be an unfamiliar approach for many – the latest PPI research found that people tend to be short-termist when thinking about retirement, and often only plan two years ahead even after they retire. This lack of foresight could have disastrous consequences.

“Even if you don’t suffer from dementia, you will tend to get less good at harder decisions in your late 80s and 90s,” says Boulding. Very elderly people are therefore left vulnerable if they are in drawdown arrangements and don’t have a contingency plan in place.

The industry could be doing much more to help savers streamline this process to make it less daunting for consumers. Boulding goes as far as to say there should be certain minimum standards for flexible drawdown products:


  • A simple fund range
  • Low charges
  • A suggested withdrawal rate
  • A slick operation for changing monthly payments or taking one-off lump sums
  • Ongoing reviews
  • Strong governance


Retirement can be a wilderness, and many people will feel uncomfortable going it alone. If the government or the industry can come up with a way of simplifying the decision-making process then more people can look forward to freedom, instead of being scared by choice.