Insight The overlooked years: Rethinking the pre-retirement journey

For years, defined contribution (DC) investment design has focused on two distinct stages of the member journey.  

The first is accumulation, where attention has increasingly turned to private markets, diversification and improving long-term growth potential. The second is retirement, where schemes continue to refine solutions for drawdown, annuities and other decumulation pathways.  

Between these sits a critical yet often overlooked phase: the years immediately before retirement.  

It is here that members typically hold their largest pension balances. The impact of market gains and losses is magnified, while the ability to recover from setbacks becomes increasingly limited. Yet compared with other stages of the investment journey, relatively little attention has been paid to how portfolios should be designed during this period. 

Our latest roundtable brought together chief investment officers, consultants and pension providers from across the DC market to explore the middle of the glidepath. Following last year's discussion on fixed income and portfolio construction, attention turned to a phase of the member journey that sits between a decade of growth-stage innovation and the industry's growing focus on decumulation and guided retirement. 

Does the traditional approach to pre-retirement investing remain fit for purpose and if not, what might a better solution look like? 

What challenges are schemes solving for?

One of the central questions was whether schemes have historically prioritised risk reduction too early in the member journey. Traditional glidepaths were often built around a relatively predictable retirement destination. Members approaching retirement would typically move progressively out of growth assets and into bonds to prepare for purchasing an annuity. 

But today's retirement landscape looks very different. Members now use their pension savings in a variety of ways, including drawdown, partial withdrawals, cash access and blended approaches. As retirement outcomes have diversified, participants questioned whether investment strategies have evolved quickly enough to keep pace. 

This raises important questions about the design of the de-risking journey: 

• How much risk should members take as they approach retirement?  
• How long should the de-risking runway be?  
• And does moving members into defensive assets too early create an opportunity cost that ultimately harms retirement outcomes? 

Participants debated the appropriate length of the de-risking runway and whether members have historically been moved into lower-risk assets too early. While there was no consensus, there was broad recognition that reducing risk cannot be the sole objective if it comes at the expense of long-term outcomes. 

The challenge of the middle, pre-retirement phase and why it matters

The discussion also highlighted why the years immediately before retirement deserve greater attention. 

At this stage of the journey, pension pots are typically at their largest. A market move that might appear modest in percentage terms can have a significant impact on the value of a retirement pot. At the same time, members have fewer years remaining to recover from losses before they begin drawing on their savings. 

However, participants emphasised that this is not simply an investment challenge. The glidepath is also a behavioural construct. 

When members experience significant declines close to retirement, reassuring them that markets may eventually recover is often insufficient. Faced with losses, individuals may choose to delay retirement, remain in work for longer or lock in losses through investment decisions. In other words, outcomes are shaped not only by portfolio design but by how people respond when markets become difficult. 

This has led to a growing appreciation that successful retirement design requires a better understanding of human behaviour alongside traditional measures of investment risk. 

Building a better middle: The investment toolkit

When discussing potential solutions, participants explored whether the traditional equity and bond framework remains sufficient for the pre-retirement phase. 

Credit featured prominently in the conversation. While fixed income has traditionally been viewed as a defensive allocation, many participants highlighted its growing role as a potential source of returns. The discussion extended beyond investment grade and high yield credit to consider a broader range of opportunities across the fixed income universe. 

Beyond credit, participants debated the role of options-based equity strategies and other approaches designed to balance growth potential with downside risk. 

Opinions varied considerably. While some saw merit in expanding the toolkit available to schemes, others questioned whether additional complexity, costs and governance requirements could be justified. This was particularly true for strategies involving alternative investments, private markets and more sophisticated portfolio techniques. 

Importantly, the barriers identified were not solely investment related. Governance budgets, operational complexity, platform capabilities and implementation challenges were all seen as important considerations when assessing potential solutions. 

Redefining the glidepath 

Perhaps the strongest theme to emerge from the discussion was the need to think beyond individual asset classes. The strongest conceptual contribution drew on the Dutch model: separate assets into a matching portfolio and a return portfolio, with credit sitting between them. Applied to UK DC, the design question becomes what should match the first years of spending after retirement and what should remain invested to strengthen future outcomes. 

Participants repeatedly returned to the idea that success should ultimately be defined by outcomes rather than portfolio components. The challenge is not simply identifying the optimal allocation to equities, bonds or alternatives, but designing a journey that helps members achieve better retirement outcomes in practice. 

This introduces difficult questions. Given finite fee budgets, where can investment resources have the greatest impact? How should schemes balance growth and protection? And what does success look like at retirement?

The discussion did not produce a single answer, nor was one expected. Retirement objectives, pot sizes and member preferences vary too widely for a universal solution. 

Instead, participants described an industry moving towards a small number of robust, scalable pathways that can accommodate different retirement behaviours while remaining practical to govern and implement. 

What does “good” look like at retirement? 

One of the final questions posed to the group was also one of the most difficult: what does "good" actually look like at retirement? There was no single answer. While some participants framed success as delivering a sustainable income throughout retirement, others noted that flexibility can be just as important. What the industry views as an optimal outcome may not always align with what an individual wants or needs.  

This reflects a broader theme from the discussion, one where Investment innovation remains important, but the future of retirement design is increasingly focused on understanding behaviour, guiding decision-making and defining success through real-world outcomes rather than investment returns alone. 

The years immediately before retirement may once have been viewed as a transitional stage between growth and retirement. Increasingly, they are being recognised as one of the most critical parts of the entire member journey. And while there may be no single blueprint for success, participants agreed that improving outcomes begins with giving this overlooked phase the attention it deserves as ultimately, success will be measured not by the sophistication of the toolkit, but by the outcomes it helps deliver.

Defined contribution pensions

Pension funds across Europe face evolving priorities. Invesco combines global perspectives with local understanding to support each market.

Discover more