UK Government Outlines Guiding Principles for Guided Retirement

The paper sets out key elements of the government’s proposed approach including:

• The need for guided retirement solutions to include longevity protection
• The need for and timing of member consent, and
• The scope for members to make alternative choices

However, it also leaves important questions unanswered. We examine the latest update below.

What is guided retirement?

The government considers that the UK does not yet have a DC pensions system that adequately supports people to and through retirement. Most people do not take regulated financial advice, so individuals approaching retirement are left to make difficult, high-stakes judgements, which can significantly affect whether their pension savings will provide them with an income throughout their later life. Guided retirement is intended to be a central plank of the government's wider reform agenda to overcome this complexity, reduce the risks borne by individuals, and improve the sustainability and security of retirement incomes. 

The Pension Schemes Act 2026 will place duties on trustees of DC schemes (and DC sections of hybrid schemes) to provide default retirement solutions which are suitable for their members. Further detail on these duties are due to be set out in regulations. The FCA is required to introduce equivalent rules for the workplace pensions it regulates, so the principles in this paper are intended to apply across the whole of the market.

Rather than being highly prescriptive, the framework will require schemes to have strong and effective governance in place to design retirement solutions that are appropriate for their own membership. Schemes will need to make available one or more retirement solutions, including at least one default, and to review these on a regular basis. These solutions could be provided in-scheme or, where certain conditions are met, through a partnership arrangement with a separate scheme or provider.

The government has emphasised that effective member communication will be essential, meaning trustees and providers must ensure their members are given information about the default solution on offer and the alternative options that are available. 

The key principles

The paper sets out four guiding principles that default retirement solutions will need to satisfy:

1. No complex decision-making - The pensions industry, rather than the member, will be expected to do the "heavy lifting". The government notes that decisions about drawing a retirement income are highly complex and that most people are unable to engage with them effectively, citing FCA research that 52% of DC savers have low or very low pension engagement and 31% do not even know their pot is invested. For most savers, the only decision required will be when to access their pension, and whether to remain in the default retirement solution or choose an alternative. Those who wish to take a more active role will remain free to shop around and choose their own solution
2. Freedom of choice - The introduction of default solutions is not intended to erode individual choice. The government recognises that some members, particularly those with higher pension wealth or more complex circumstances, may prefer to make their own decisions. It continues to be committed to ensuring individuals can access appropriate support, including high-quality financial advice, Pension Wise, and targeted support (or an equivalent) where available
3. Protection against longevity risk – The paper makes clear that “default pensions must provide a retirement income that lasts throughout retirement”, in recognition of the wide uncertainty surrounding individual life expectancy. The government cites evidence that around half of working-age adults have no retirement plan, and that many people underestimate how long they will need their pension to last. Trustees and providers will, however, retain some flexibility as to how they deliver this protection, including through phased approaches such as a "flex then fix" model. The government has also signalled its support for the introduction of Retirement CDC, which would meet this requirement and could form part of a scheme’s guided retirement solution now that the implementation timetable has been pushed back
4. Consent - Members will need to actively consent before starting to receive payments through a default solution. The government regards this as the key "consent moment" and an opportunity to maximise engagement and explain the alternative options that are available. Where a default solution involves different phases (such as "flex then fix"), members should be told at the point of access, and throughout their pensions journey, when their ability to choose a different option will become restricted — but, significantly, schemes will not be expected to seek consent multiple times

Areas for consideration

While it is helpful to understand the DWP’s current thinking and approach, this paper leaves a number of important questions unanswered, including:

• Does the fact default pensions must provide an income that lasts a lifetime mean that all default retirement solutions will need to feature annuities or Retirement CDC? And that drawdown – even in a curated form – won’t work? 
• Will there be a carve-out – from either the entire guided retirement requirements, or the specific requirement for a lifetime income - for small pots? If so, what is 'small' in these contexts?
• At what point will a member need to be steered towards their default retirement solution?

These questions need to be answered to enable schemes and providers to design their guided retirement solutions and processes. Hopefully, they will be addressed in the policy consultation, which the government has indicated will be published later this year.

What does this mean in practice?

For DC schemes and providers, this paper is a helpful signal of the direction of travel. Although it does not answer all the questions, schemes and providers can now start giving careful thought to how they will meet these principles, and the detailed legislative requirements, in practice. 

For example:

• Trustees and providers need to determine how many solutions their scheme will offer, how they will segment their membership and which solution will be the default for each segment
• Where a scheme plans to partner with a third party provider, the trustees or provider will need to be satisfied that an internal solution is not practicable or that the external one will provide better outcomes, and
• Where a scheme plans to offer a “flex then fix” design, the trustees or provider will need to work out how the “fix” element will be delivered and also when and how a member’s flexibility is curtailed, and how this is communicated

The interaction with Retirement CDC is something to watch closely, as this may be the main alternative to annuities to provide savers with a default retirement solution that provides an income for life. It appears that schemes (including DC master trusts and group personal pensions) intending to use Retirement CDC as a default solution will also benefit from a targeted, time-limited extension to allow them time to establish their Retirement CDC arrangement before they are required to implement guided retirement.

The government has also reaffirmed its commitment to ensuring targeted support works alongside guided retirement, with the aim of providing all members with access to high-quality support regardless of their scheme’s regulatory framework. Further detail is expected from the government and the FCA on how trustees can offer equivalent support without breaching the FCA’s rules, enabling them to better support members in making retirement decisions.

When will this happen?

Under the DWP's updated roadmap the timetable for implementing guided retirement has been pushed back by two years. This means guided retirement will apply to:

• DC master trusts and FCA-regulated workplace pension schemes from summer 2029, and 
• Own trust DC schemes (including DC sections of hybrid schemes) and schemes which decide to use Retirement CDC from 2030

In advance of this, the government plans to consult on its detailed policy proposals in Autumn 2026, with the FCA due to publish an accompanying discussion paper on equivalent requirements for contract-based workplace schemes. This will be followed by consultations on draft DWP regulations and draft FCA rules in the second half of 2027, with subsequent consultations on supporting guidance. The FCA is expected to publish its policy statement in the third quarter of 2028.

The volume of consultations still to come means schemes and providers should treat guided retirement as a multi-year engagement process rather than a single compliance deadline, and many will want to respond to these consultations directly or engage with the Industry Delivery Group as it develops.

We would encourage DC schemes to begin considering their approach to guided retirement well ahead of the implementation deadlines given the scale of the design, governance and communication work that will be involved. Some smaller own trust DC schemes may also see this as a trigger to transfer to a master trust or FCA-regulated arrangement.