The Department for Work and Pensions (DWP) has announced proposals that could benefit around 17 million private sector workers by giving them access to a pension income that lasts throughout retirement, a change the Government says public sector workers already take for granted.
The plans, announced on Tuesday, are designed to close the gap between private and public sector pensions. Under the new measures, private sector workers saving into Defined Contribution (DC) pension schemes will be offered a new default retirement option known as Guided Retirement, allowing them to turn their pension savings into a regular income without making complicated financial decisions when they stop working.
Closing the Private-Public Pension Gap
According to the DWP, the introduction of Automatic Enrolment means nine in 10 eligible private sector workers are now saving, up from four in 10 in 2012. The vast majority, however, are saving into DC pensions and are left entering retirement with a savings pot rather than a route to a genuine pension that provides a secure income lasting throughout their later life.
Minister for Pensions Torsten Bell said: "Private sector workers deserve a much better deal when it comes to pensions. They are doing the right thing and saving for retirement, but when they get there too many are left without a genuine pension."
Bell added: "We are resurrecting proper pensions for private sectors workers, guaranteeing them the option of an income that last throughout retirement and in many cases protection against the rising cost of living - things public sector workers take for granted."
Guided Retirement and Collective Schemes
In 2025/26, around 46% of first-time pension pot accesses involved the pot being fully withdrawn, according to the Government. Guided Retirement aims to close that gap by requiring pension providers to offer a genuine pension that protects people from the risk of outliving their savings.
The new proposals would require pension schemes to offer members a default pension option as they approach retirement. Another key element is the introduction of Retirement Collective Pension Schemes (RCPS), which would allow pension providers to pool investment and longevity risks between members to provide a more stable retirement income while offering the potential for investment growth.
The Government is publishing its response to the policy consultation on RCPS today, alongside draft regulations to enable providers to offer them as a default pension. The Government has also confirmed that savers will retain freedom of choice, and those who prefer to withdraw their pension savings or choose a different retirement option will still be able to do so.
Joint Development and Consultations
The plans are being developed jointly by the DWP, HM Treasury, the Financial Conduct Authority (FCA) and The Pensions Regulator (TPR). Two consultations have been launched, one covering how Guided Retirement should operate in practice and another setting out draft regulations to allow RCPS to be offered as default retirement options.
Therese Chambers, executive director at the Financial Conduct Authority, said: "People should not have to navigate complex pension decisions alone. Guided retirement will offer a simpler way to turn savings into income, regardless of which workplace pension people have."
