Guided Retirement – ushering in a new era for UK defined contribution pensions

For the past decade, UK defined contribution (DC) pensions have been built around freedom and choice. Since 2015, members have been able to access their savings flexibly — they can take cash (with 25% usually tax-free), enter drawdown or purchase an annuity. However, this flexibility has come with significantly greater risk and responsibility for individuals.

Each of the established options come with disadvantages for members. Annuities provide security but are often perceived as poor value and inflexible. Fully cashing out can trigger detrimental tax consequences and leaves individuals to manage their retirement savings without structured support. Drawdown, now the most common route, requires members to navigate complex decisions around withdrawal rates, investment strategy, longevity risk and tax planning – and most members won't want to pay for specialist advice for this. This "drawdown problem" has become a defining feature of the DC landscape. Further, inheritance tax changes from April 2027 will reduce the attractiveness of drawdown as an inheritance vehicle, providing a further nudge for DC savers towards using their accounts for their own retirement income.

What the Pension Schemes Bill means for DC Trustees

The 2025 Pension Schemes Bill (the "Bill"), recognises this problem and marks a clear shift for the future of DC pensions in the UK. For the first time, DC trustees will be required to provide a "default pension benefit solution" also known as Guided Retirement, rather than simply delivering a savings account. The Government sees this as extending auto-enrolment to also cover decumulation. The Government's roadmap suggests that Master Trusts will need to comply from 2027, with single employer trusts and Group Personal Pensions following in 2028.

The Bill provides only a broad outline of Guided Retirement, leaving the detail to secondary legislation due in mid 2026. The key requirements from the Bill are:

• Trustees must provide members with signposting to a retirement "default", for members who do not wish to actively choose between multiple retirement options
• The default must be "designed to provide a regular income… in retirement"
• In choosing the default(s), trustees must take account of the "needs and interests" and "circumstances" of the group of members it is for

Regulations are due for consultation soon to expand on these requirements

The regulations should shed light on many areas including:

• What  will count as using the account to provide a "regular income" – for example, whether a default can use only a small part of the account to provide this income or if there is a minimum level
• Whether assets must provide each member with an income that will last for their life – documents published alongside the Bill make reference to such longevity protection, although it isn't clear how this will be reflected in the regulations
• Which member "circumstances" trustees are expected to take into account when deciding on suitable defaults and how trustees can do this where they have limited or imperfect data for disengaged members
• The balance trustees will be expected to strike between the following, recognising that the two can coexist:
• Expecting continuing member inertia – requiring strong defaults for disengaged members
• Encouraging engagement i.e. providing better information for member decision making
• What other factors Trustees must take account of when choosing retirement defaults

Further, regulations could feature requirements around inflation protection, value for money, cooling off periods, flexibility and protection for Trustees in making these difficult judgements.

Potential offerings

The aims of Guided Retirement – income for life, value for money and support for those unable or unwilling to make active decisions – stand in contrast to today's largely unassisted drawdown environment. Given drawdown complexities, many members struggle even with basic retirement planning, making a well‑designed default income essential.

Most single employer trusts are likely to partner with a master trust to provide their default retirement solution, rather than build something themselves. The landscape is evolving quickly. Two solutions are emerging as the front runners to meet the Guided Retirement requirements.

• Some providers are developing "flex and fix" solutions: Providing drawdown flexibility in the early years of retirement and converting to an annuity in the later years. These solutions tend to have modelling tools to guide members into suitable account splits and annuity timing. This demonstrates how the market could develop: practical, member‑oriented design, supported by decision tools that give clearer expectations of sustainable income.
• Retirement Collective Defined Contribution is a new option that's coming and takes a collective approach, providing income for life, with benefit increases targeted at inflation (but adjusted each year depending on scheme experience). Members benefit from pooling longevity risk and Trustee-managed investments, giving higher expected income than flex then fix solutions. Further, members don't need to make complex pensions management decisions themselves – the Trustees will do that for them.

Guided Retirement represents a transformational shift for UK DC pensions, moving the focus from simply delivering a savings account to providing an income in retirement. DC Trustees should start exploring how to approach this and begin to look at the range of default solutions available.

Contacts

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Shriti Jadav

Director, Retirement

Shriti is a Scheme Actuary and senior pensions consultant at WTW, advising trustees and sponsors of pensions schemes on funding, risk management and endgame strategies. She is a recognised voice in CDC and DC decumulation and is the Communications Lead for the Institute and Faculty of Actuaries’ CDC working party. Shriti leads on external content across WTW’s GB retirement business driving the production of thought leadership.

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Simon Eagle

GB Head of CDC and Risk Sharing

Simon is a pensions actuary specialising in Collective Defined Contribution (CDC) and risk sharing plan design, and the Scheme Actuary to the Royal Mail Collective Pension Plan—the UK’s first CDC scheme. He created and leads WTW’s CDC team, engages regularly with government and industry bodies on CDC policy, and is a frequent speaker and commentator on the evolution of CDC and retirement income solutions.

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