The government has opened a consultation on plans to require pension schemes to offer savers a default way of turning their savings into retirement income, rather than leaving them to decide alone how to manage a pot.
The proposals, published on 3 November and running until 22 December, would affect around 17 million private sector workers who are currently building pension savings. A parallel consultation sets out draft rules for collective pension schemes that would pool risk and pay an income for life.
The problem being addressed
Most private sector workers now retire with a defined contribution pot rather than a guaranteed salary-linked pension. When they reach retirement, they must decide whether to buy an annuity, draw the money down, take it as cash or some combination, and the consequences of a poor decision last for decades.
The government says the current system leaves too many people making complex financial choices without support. In 2025/26, around 46 per cent of first-time accesses to a pension pot involved withdrawing the whole amount, a choice that removes the money from the tax-efficient environment and can leave people reliant on the state later in life.
Pensions Minister Torsten Bell set out the plans at the annual conference of the Association of British Insurers, arguing that the shift from defined benefit to defined contribution pensions has never been matched by a corresponding shift in how people convert their savings into income.
How a default would work
Under the proposals, schemes would be required to offer a default retirement income option, alongside the existing choices. Savers would keep the right to pick a different product or to take their money differently, but doing nothing would produce a sensible outcome rather than a stranded pot.
The collective schemes proposed in the second consultation would pool members’ money and pay an income for life, sharing longevity risk across the group. The model is used in several other countries and is similar in structure to the collective defined contribution schemes already authorised for a small number of UK employers.
The Financial Conduct Authority’s executive director for consumers and competition, Therese Chambers, said people should not have to navigate complex decisions alone, and that the regulator would work with the government on the consumer protection framework.
The questions the consultation must answer
The first is who bears the investment and longevity risk. A default income product that guarantees a payment for life requires someone to hold the risk, and that someone will charge for it. If the charge is too high, savers lose out; if it is too low, providers will not offer the product.
The second is advice. A default is not advice, and there is a risk that savers treat it as a recommendation that fits their circumstances when it is simply a reasonable option for the average member. The consultation asks how schemes should communicate the choice without overwhelming people.
The third is the interaction with the state pension and with means-tested benefits. A default income that begins at 65 may be unsuitable for someone who plans to work longer, and a product that pays a level income may leave people short in later life when care costs rise.
What happens next
The consultation closes on 22 December. Legislation is unlikely before 2027, and schemes would need several years to build the systems and provider relationships required to offer a default at scale.
The prize, if it works, is a generation of retirees who convert their savings into a reliable income rather than running out of money in their eighties. The risk is that a well-intentioned default becomes a product that is easy to sell, hard to understand and expensive to leave.
