UK defined contribution schemes face greater responsibility for retirement incomes

The UK government has set out plans to give defined contribution (DC) pension schemes greater responsibility for delivering retirement incomes, including through default retirement products and the introduction of Retirement Collective Pension Schemes (RCPS).

Announced by pensions minister Torsten Bell at the Association of British Insurers’ Long-Term Savings Conference on 3 November, the proposals aim to give around 17 million private sector workers access to a retirement income solution designed to last throughout retirement.

Under the proposed Guided Retirement framework, pension funds will be required to offer a default retirement income solution to members approaching retirement, providing a route to convert accumulated DC savings into an income without requiring individuals to navigate complex financial decisions themselves.

The government said the reforms would shift more responsibility onto pension schemes to manage retirement risks, rather than leaving individuals to decide how to draw down their savings.

It cited figures showing that around 46% of first-time pension pot accesses in 2025/26 involved the full withdrawal of the pot.

RCPS are among the options being considered for delivering these default arrangements. The model pools investment and longevity risks across members, aiming to provide a regular income throughout retirement while retaining exposure to investment growth.

The government said the arrangements could offer members some of the benefits traditionally associated with defined benefit (DB) pensions, including an income for life and, in some cases, protection against inflation. However, unlike DB pensions, RCPS do not guarantee a particular level of income.

Bell said: “Pension schemes will do more of the heavy lifting for their members, with, for example, Retirement Collective Pension Schemes pooling risk to deliver stability and growth and providing a fully managed pension people can rely on for life.”

The Department for Work and Pensions (DWP) has published a consultation on Guided Retirement jointly with the Financial Conduct Authority (FCA) and The Pensions Regulator (TPR), setting out proposals for how default retirement income solutions should operate.

FCA executive director Therese Chambers said the proposals would offer savers a simpler way to turn pension savings into income, regardless of which workplace pension scheme they belonged to.

TPR executive director of strategy, policy and analysis Richard Knox added that well-designed default options would help members navigate the complex decisions involved in converting pension pots into sustainable retirement income.

The Guided Retirement consultation closes on 22 December 2026.

Joe Dabrowski, director of policy at Smart Pension, said Guided Retirement could be a game-changer for saver outcomes.

He said: “Defaults made auto-enrolment work, and we support [members] at retirement too, but designing a default for retirement is much harder than designing one for saving. If we get the design wrong, we will get the outcome wrong. Our research shows that people’s approach to later life is changing dramatically, so solutions must be built around how retirement is changing. We look forward to responding to the detail of the proposals.”

Yvonne Braun, director of long-term savings policy at the ABI, said Guided Retirement had the potential to simplify decisions about accessing pensions and help more people secure an income for life. However, she stressed that individuals should retain the freedom to make their own decisions.

Braun welcomed the consultations but said the “devil will be in the detail”.

“For these rules to work in practice, people need a clear and consistent journey when accessing their pension. We’ll continue to work with the government and both regulators to help shape the final rules,” she noted.

Steve Webb, partner at LCP, warned that the “government’s hostility to pension freedoms will lead them to promote ‘lifetime income’ solutions too heavily”.

He said: “If people want a secure income for life, the option of buying an annuity has always been there, but very few people freely choose it.”

Webb cautioned against allowing the focus on retirement income to undermine pension freedoms and choice, which he said had proved popular with savers and provided valuable flexibility to hundreds of thousands of people over the past decade.

James Carter, head of platform policy at Fidelity International, said the new framework needed to align with the wider policy landscape.

“If people want a secure income for life, the option of buying an annuity has always been there, but very few people freely choose it”

Steve Webb at LCP

He said: “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.”

Retirement CDC

Alongside the Guided Retirement consultation, the government has published draft regulations to enable RCPS to be used as default retirement income arrangements, as well as its response to the earlier consultation on the model.

The proposals cover how default retirement income options should be designed and delivered, the support schemes should provide to members approaching retirement and how the framework can be implemented.

The consultation on the draft RCPS regulations closes on 15 December 2026.

Stewart Patterson, head of innovation at LifeSight, said Retirement CDC and Guided Retirement had the potential to reshape retirement provision in the same way automatic enrolment had transformed pension saving.

He said: “Most people want a reliable income throughout retirement, not a series of difficult financial decisions. Retirement CDC can help meet that need by providing an income for life without placing the ongoing burden of investment and withdrawal decisions on individuals.”

LifeSight has been the first scheme to publicly commit to launching a Retirement CDC solution once the regulatory framework is in place.

Patterson added: “We believe it has the potential to become a cornerstone of future retirement provision and improve outcomes for millions of defined contribution savers.”

Lauren Branney, head of CDC at Hymans Robertson, described the RCPS consultation as a “major moment for workplace DC pension savers”.

She said: “While there are trade-offs in relation to flexibility and leaving a legacy, the chance to deliver a higher income in retirement is an opportunity that will work well for many, especially with the retirement income adequacy challenge we see today for DC savers.

“Coupled with Guided Retirement, the industry now has the means to harness the power of scale in delivering a default savings solution for DC members all through retirement.”

Branney explained that “flexibility and choice is important and will be retained under the new regulations”, adding: “But by empowering trustees and pension providers to deliver an income from DC as a default, it removes the difficult decision-making burden from savers while retaining choice for those who prefer a different approach.”

She added that communication and engagement would remain important, and that the industry would need to get the design and delivery model right to operate at scale across workplace pension schemes.