Trust-based and contract defined contribution pension schemes must reconsider the investment options offered and the default investment funds used following the March Budget, according to Mercer.
The consultants said many DC members would be invested in schemes targeting the purchase of an annuity at retirement. But, with the need to buy an annuity ending from April 6 next year, existing 'life-styling' strategies would be inappropriate to members needs.
Mercer said the most successful DC schemes were those that 'not only take people to retirement but have the facilities to help through retirement'.
Brian Henderson, head of Mercer's DC and savings team said: 'Future retirees are likely to have a pattern of expenditure that is "U" shaped. In the earlier years of retirement, expenditure remain high through travel and recreation, then diminishes with age, but will be later replaced by less discretionary items such as medical expenses and long-term care.
'Experience in other countries, such as Australia, suggest that this pattern will trigger demand for pension schemes that can provide both investment growth and capital stability during retirement. In other words, the most successful DC schemes will be those that not only take people to retirement but have facilities to help members through retirement.'
He said DC governing boards were already questioning the suitability of their investment arrangements in light of the Budget announcement.
'A key consideration was how to accommodate the fact that not all of the 80% or so of members who invest in a scheme's default funds will require an annuity when they retire,' Henderson said.
'For example, some will wish to remain invested after their official retirement age and make periodic withdrawals from their pension capital, while others may prefer to withdraw all of their funds as cash.'