The government has launched a consultation on plans to provide defined contribution pension savers in the private sector with guided retirement options in a bid to improve their retirement outcomes.
The introduction of automatic enrolment means nine in 10 private sector workers are now saving, up from four in 10 in 2012. However, the government said the vast majority are left entering retirement with a savings pot rather than a route to a pension that provides a secure income to last throughout later life.
Speaking at the Association of British Insurers’ Long-Term Savings Conference, Minister for Pensions Torsten Bell announced two consultations, designed to give 17 million private sector workers the option to enjoy a pension that lasts throughout retirement – something that public sector workers take for granted.
The first, Guided Retirement, published jointly with the Financial Conduct Authority and the Pensions Regulator, explores how default pensions should work in practice and how they can be implemented across the market in a way that works for individuals and pension providers.
The government said the need for this “is clear”. In 2025/26, around 46% of first-time pension pot accesses involved the pot being fully withdrawn.
The Department for Work and Pensions said the purpose of the framework is to require pension providers to design or identify default pensions that are appropriate for the needs and interests of the cohort they are intended to serve, as they will not be individualised, while leaving pension savers the ability to make different choices.
The second consultation, Retirement Collective Pension Schemes, will consult on draft regulations so these schemes can be used as a default pension under Guided Retirement.
Torsten Bell, minister for pensions, said: “Private sector workers deserve a much better deal when it comes to pensions. They are doing the right thing and saving for retirement, but when they get there too many are left without a genuine pension.
“We are resurrecting proper pensions for private sector workers, guaranteeing them the option of an income that lasts throughout retirement and in many cases protection against the rising cost of living – things public sector workers take for granted.
“We are going to give pensions back to the people who are working hard and saving for their retirement.”
Industry response
James Carter, head of platform policy at Fidelity International, welcomed the announcement.
“Retirement is one of the biggest financial decisions people will ever make, yet too many are left to navigate it without the support they need. Today’s joint Guided Retirement Consultation from the DWP, FCA and TPR is a welcome move towards addressing this and helping savers to achieve better outcomes.
“It is important that the new framework aligns with the wider policy landscape, and we are pleased to see recognition that Targeted Support and Guided Retirement can work together. Bringing these together creates a significant opportunity for us to provide savers with greater guidance and support in navigating the complex choices they face when approaching retirement.
“This is a pivotal policy and there remain some important principles to be settled to ensure pension members are best supported. We look forward to continuing to work with Government and regulators as these proposals progress.”
Standard Life also welcomed the announcement but cautioned that a default option should provide a guardrail rather than become a substitute for engagement.
Emma Furlonger, managing director of workplace and retail intermediary at Standard Life, commented: “We support the principle of Guided Retirement and its potential to improve outcomes for people who need greater support when accessing their pension savings. The pensions system should work for people who engage and also those who don’t.
“However, a default should provide an important guardrail rather than become a substitute for engagement and appropriate decision support. People should understand the approach being offered, have meaningful opportunities to consider whether it remains right for them and retain the freedom to choose an alternative.
“The government rightly positions this as a step forward for private sector workers and point towards the potential it offers to bridge the gap to public sector pension provision, where income is guaranteed. While greater income certainty is a part of the challenge, in our view the biggest gap is the level of income that the average private sector worker can expect from their pension and this will only be addressed by higher contributions and better returns.
“The final framework must give providers enough flexibility to develop a range of effective retirement income solutions, while ensuring Guided Retirement and Targeted Support work coherently together, with clear distinction and boundaries.”
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