Around 17 million private sector workers saving into defined contribution (DC) pensions will be given the option of a secure income throughout retirement under new government plans to introduce default retirement products.

The Guided Retirement proposals aim to address the gap between private and public sector pensions, with many private sector savers currently reaching retirement with a pension pot but no guaranteed income for life. The government said the reforms would effectively restore the option of a traditional pension, potentially including protection against inflation.

The plans follow the growth of automatic enrolment, which has increased the proportion of eligible private sector workers saving into a pension from four in 10 in 2012 to nine in 10 today.

However, around 46% of first-time pension pot withdrawals in 2025/26 involved savers taking their entire pot as cash, highlighting the challenges people face when turning savings into sustainable retirement income.

Pension providers will be required to offer default retirement options, allowing members to access a stable income without having to make complex investment and financial decisions themselves. One option will be Retirement Collective Pension Schemes (RCPS), which pool investment and longevity risks to provide a managed income throughout retirement.

Pensions minister 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."

He added: "We are resurrecting proper pensions for private sector workers, guaranteeing them the option of an income that lasts throughout retirement and in many cases protection against the rising cost of living."

The government has launched two consultations, developed with the Financial Conduct Authority (FCA) and The Pensions Regulator, covering how Guided Retirement should operate and draft regulations allowing RCPS to be used as default retirement products.

FCA executive director Therese Chambers said the proposals would offer people "a simpler way to turn savings into income", while The Pensions Regulator's executive director Richard Knox said well-designed default options would help savers navigate important retirement decisions.

The Guided Retirement consultation runs until 22 December 2026. Savers will retain the freedom to choose alternative retirement arrangements, but providers will be expected to ensure those who do not want to manage the process themselves have access to a sustainable income for life.

In response to the two new consultations, director policy at Smart Pension, Joe Dabrowski, said: “Guided Retirement should be a game-changer for saver outcomes, and it is great to see the detailed thought and challenge set out in the consultation. Defaults made auto-enrolment work and we support them 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.”

Maurice Titley, commercial director of Data and Dashboards at insurtech Lumera, added: “The Government’s plans mark an important development in how people will be supported through re-tirement and could help them make better and more sustainable use of the savings they have built up. Their success will ultimately depend on how well providers can design solutions for different groups of members and allocate people to pathways that reflect their needs.

“There is an important balance to strike between providing a sustainable income throughout retirement and retaining flexibility for people who may want to access more of their savings in the earlier years. This is unlikely to be a one-size-fits-all model. Providers will need to consider a range of designs, including collective pension arrangements and phased solutions that combine flexible access with secure or longevity-protected income later in life."

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