The Department for Work and Pensions (DWP) has announced new plans to give around 17 million private sector workers the option of receiving a regular income for life when they retire.
The proposals, unveiled on Tuesday (November 3), aim to close the gap between workplace pensions in the private and public sectors by giving more people access to a retirement income that could also be protected against inflation. Minister for Pensions Torsten Bell announced two consultations at the Association of British Insurers (ABI) Long-Term Savings Conference, setting out plans for a new approach called Guided Retirement.
Guided Retirement proposals
The UK Government wants pension providers to offer a default retirement income option to people approaching retirement, removing the need for savers to make complicated financial decisions about managing their pension pots.
Over the past 30 years, most private sector Defined Benefit pension schemes, which traditionally provided a guaranteed income throughout retirement, have closed to new members. Although automatic enrolment has increased the number of people saving into workplace pensions, most private sector employees now have Defined Contribution pensions, where retirement income depends on the amount saved and investment performance.
The DWP stated that nine in 10 eligible private sector workers are now saving into a pension, compared with four in 10 in 2012.
Default pension option
Under the proposed Guided Retirement system, pension schemes would be required to provide a default pension option for savers approaching retirement. This could include Retirement Collective Pension Schemes, which pool members' savings and share risks to provide a managed retirement income.
Unlike traditional Defined Benefit pensions, payments from collective arrangements would not necessarily be guaranteed and could change depending on investment performance and other factors. However, savers would retain the freedom to choose another way of accessing their pension savings if they preferred.
Mr 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."
He added: "We are going to give pensions back to the people who are working hard and saving for their retirement."
Impact on savers
The DWP highlighted figures showing around 46 per cent of first-time pension pot accesses in 2025/26 involved people withdrawing their entire savings. The UK Government believes the new approach could reduce the risk of people exhausting their retirement savings too early.
Therese Chambers, executive director at the Financial Conduct Authority (FCA), 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."
The Guided Retirement consultation, developed with the Treasury, FCA and The Pensions Regulator, will run until December 22, 2026.
