The incoming guided retirement approach may need to be an ongoing, dynamic pathway, rather than a one-off decision at the point of access, the Pensions Policy Institute has suggested in a report published on Monday, saying this has implications for when the pathway begins, how it evolves  and how members are supported to revisit decisions.   

The PPI’s latest report, ‘Designing Guided Retirement Solutions: Meeting Member Needs’ – sponsored by Now Pensions, the Pensions Regulator, Royal London, Scottish Widows and Wealth at Work – said guided retirement should be understood less as a single product innovation and more as the gradual development of a new layer of retirement support within the UK pensions system.

Key questions remain, it found, such as when guided retirement solutions should begin, how schemes can support decisions when they only have partial visibility of members’ wider financial circumstances, and how strongly to guide member choices through recommendation, trustee-led assignment or default mechanisms.  

Guided retirement, or ‘default pension benefit solutions’, are expected to become a requirement for master trusts in 2027, and for group personal pensions and single trusts in 2028 based on the government’s current defined contribution roadmap.  

Under the new legislation, these solutions must provide a “regular income” in retirement, though the PPI notes that it is not clear to what extent they have to protect against longevity, inflation or investment volatility, or the degree to which schemes and providers should guide member choice.  

The pensions minister, speaking at the Investment and Saving Alliance annual conference last week, implied that longevity protection should be part of default solutions, at the same time ruling out a return to compulsory annuity purchase. 

Torsten Bell said in relation to people’s “main pot”, providers need to provide a pension income. “In particular, it needs to undo one of our biggest mistakes, which is we currently are not offering people a route to longevity protection,” he said. “You want to pool that risk in some form. That is what providers will end up doing by default pensions.”

 

Pooling longevity risk would imply annuities or retirement collective DC, which are both irreversible for members.

The PPI warned that income security, flexibility and simplicity “cannot all be maximised simultaneously”, saying different design approaches will reflect these varying priorities among memberships. It argues that segmentation will need to be at the centre of solution design.  

 

PPI senior policy researcher and lead author of the study Mariana García Requejo said many questions lie ahead around the design and implementation of guided retirement given the competing objectives of income security and flexibility. 

“In order to meet [member needs] as best as possible, it’s vital these solutions are understood as a gradual development towards a new layer of retirement support within the UK pensions system, rather than a single product innovation,” she said.

The Pensions Regulator’s director of policy, pensions reform, Joey Patel, said members need more help to turn a savings pot into a sustainable retirement income, and reminded trustees to start working on guided retirement.  

“Default pension benefit solutions have the potential to make a real difference,” she said. “We urge schemes to start preparing now by getting to know their members, improving their data and considering how they will design and implement defaults that truly deliver better outcomes for members.”  

Lizzy Holliday, director of public affairs and policy at Mercer’s Now Pensions, said while guided retirement represents a step forward in supporting savers at retirement, “there is further work to do to enable successful delivery”.  

Advisers are more sceptical about defaulting people into pension solutions. Retirement decisions are complex and highly personal, said Jonathan Watts-Lay, director of advisory and education provider Wealth at Work.  

“A generic default pathway risks people sleepwalking into choices that don’t fit their circumstances or meet their needs, particularly as many retirees are likely to have multiple pension pots with varying amounts saved into each,” he cautioned.