When most people enrol in a workplace pension, the decision ends there. They accept the default fund, rarely check its performance, and trust that the system is working in their favour. But newly published data covering a full decade of returns suggests that this passive trust may come at a high psychological and financial cost.
Corporate Adviser released independently compiled 10-year performance figures for defined contribution (DC) master trust default funds, using its CAPAdata dataset. The top-performing default fund returned 232% over the decade to December 2025, while the lowest returned just 88%. That is not a rounding error. It is the difference between a comfortable retirement and a constrained one, and it raises questions that belong as much in behavioural science as they do in financial regulation.
The psychology of default bias
Default bias is well established in behavioural psychology. When people are presented with a pre-selected option, they tend to stick with it, regardless of whether it serves their interests. Richard Thaler and Cass Sunstein explored this extensively in their work on “nudge” theory, demonstrating that defaults are among the most powerful determinants of human choice.
In the pension context, this means most savers never actively choose their investment strategy. They inherit one. The quality of that inherited strategy varies enormously, and the psychological comfort of having been “nudged” into a scheme may mask the reality of how well it is actually performing.
Scale as a heuristic, and its limits
One of the more psychologically interesting dynamics in the pension industry is the assumption that bigger schemes are inherently safer. This is a form of the representativeness heuristic: people and policymakers use size as a proxy for quality, even when the evidence does not support a straightforward link between the two.
Philip Smith, DC Director at TPT Retirement Solutions, whose fund ranked third in the 10-year performance table, has challenged this assumption directly:
“For a long time, scale and low cost have carried a built-in assumption of safety. Big feels credible. Cheap feels efficient. Both are easy to defend. But member outcomes are what matter, and outcomes like these are a reminder that size and price do not, on their own, define value.”
Smith’s observation maps onto what researchers call the “affect heuristic”, the tendency to let surface-level feelings of reassurance substitute for deeper analysis. When regulators and employers select pension providers based on brand recognition or fee structures alone, they may be falling into the same cognitive trap that individual consumers do when choosing products based on packaging rather than ingredients.
The emotional weight of retirement uncertainty
The gap between the best and worst performing default funds is not merely an abstract number. Behavioural research also suggests that a person’s attitude towards money, particularly their tendency towards prudent financial planning, may matter more than personality traits when it comes to protecting retirement savings.
If someone’s default fund returns 88% over a decade while another returns 232%, the downstream psychological consequences are real. Lower retirement income constrains housing choices, healthcare access, and the sense of autonomy that psychologists regard as fundamental to wellbeing in older age. The saver who trusted the system and did nothing “wrong” may still face a materially worse outcome, and the resulting sense of injustice can compound the emotional toll.
Implications for policy and individual behaviour
The UK government’s current push towards pension scheme consolidation assumes that scale leads to better outcomes. But the psychological evidence suggests that promoting consolidation purely based on size could inadvertently remove well-performing smaller funds from the market, reducing the diversity of approaches that currently benefits savers.
For individual savers, the data is a prompt to overcome the status quo bias that keeps most people disengaged from their pension choices. This does not require becoming an investment expert. It means periodically reviewing whether a default fund is delivering competitive returns, a form of financial self-care that becomes easier once the initial inertia is overcome.
The pension industry’s own language reinforces passivity: “default” itself implies no action is needed. Reframing the conversation towards terms like “starting strategy” could encourage the kind of ongoing engagement that behavioural science suggests leads to better outcomes. Scale is not a strategy, and neither is passivity. Both the industry and the individuals it serves would benefit from a more psychologically literate approach to retirement saving.
Robert Haynes, a psychology graduate from the University of Hertfordshire, has a keen interest in the fields of mental health, wellness, and lifestyle.
