Kirsty Ross of People’s Partnership looks at the government’s proposal for pension schemes to offer default decumulation services, and how these might best be designed.
The recent Pension Schemes Bill marks a turning point in the UK’s retirement landscape. A decade after pension freedoms gave savers more control over their retirement savings, policymakers are now addressing the unintended consequences of that flexibility – namely, inconsistent outcomes and a lack of support for disengaged savers.
At the heart of this reform is a renewed focus on customer outcomes. The bill introduces a requirement for pension schemes to offer default decumulation solutions, designed to guide members into sustainable retirement income without requiring complex decision-making.
This shift reflects three core principles that are essential to improving outcomes for all savers.
Applying the lessons of auto-enrolment to decumulation
Auto-enrolment transformed pension saving by recognising behavioural inertia and designing around it. Millions of workers began saving for retirement not because they actively chose to, but because the system made it easy – and defaulted them in.
Now, the same behavioural insight is being applied to decumulation. The bill requires that master trusts offer a default pension benefit solution at some point in 2027, with the aim of removing the burden of choice from members who may lack the confidence, knowledge, or desire to engage deeply with financial planning.
That’s not long away, and how we do this is going to focus minds, both at People’s Partnership and across the sector.
We think a default solution should be:
- Simple: easy to understand and navigate.
- Structured: offering phased income strategies, such as flexible drawdown followed by guaranteed income.
- Supportive: reducing the risk of poor decisions by guiding members through retirement.
Just as auto-enrolment succeeded by making pension saving the default, so default decumulation aims to make taking an income from a defined contribution (DC) pot the normal thing to do – especially for those who are least likely to seek advice.
Reframing the link between savings and retirement income
One of the unintended consequences of pension freedoms has been the decoupling of pension pots from their core purpose: providing income in retirement. Many savers now treat their pensions like a savings pot, withdrawing lump sums without a long-term plan.
For 10 years, our research series, ‘New Choices Big Decisions’, has catalogued the difficulty that people have in making retirement decisions with DC pots. In the absence of financial advice, selecting the right product and managing the risks associated with retirement is too hard for many people.
It also conflicts with the way auto-enrolment works. The inertia that underpins auto-enrolment works in accumulation but prepares people poorly for complex decision-making at retirement.
For many, a default retirement product would be essential to help turn savings into a stable and sustainable income. This is especially important as DC pensions become the primary source of retirement income for a growing number of people. According to a Pensions UK forecast, over 40% of future retirees will rely primarily on DC savings as their main retirement income.
Not relying on engagement alone to generate good outcomes
While engagement is valuable, it cannot be the sole driver of good customer outcomes. Many retirees face cognitive decline, financial anxiety, or simply lack the time and interest to manage their pensions actively.
The bill acknowledges this reality. It will shift the burden of decision-making away from individuals and onto a system that should work in the background to deliver good outcomes – even for those who never engage.
This doesn’t mean removing choice. Members can still opt out or choose alternative paths. But for the majority who don’t, the default should be safe, sustainable, and aligned with their needs.
A new retirement paradigm
Together, these principles form the foundation of a new retirement model – one that balances flexibility with structure, and freedom with support. The bill is more than a policy update; it’s a philosophical shift toward designing for real people, not idealised consumers.
By applying auto-enrolment’s behavioural insights to decumulation, re-establishing the purpose of pension savings, and designing systems that don’t rely on engagement alone, the industry can finally close the gap between saving and spending – and deliver retirement outcomes that are secure, simple, and fair.
While there will be a lot of work for the government and industry to make the contents of the bill a reality between now and 2030, the direction is at least clearer: retirement should be secure, simple, and supported, not left to fall by the wayside.
Kirsty Ross is proposition director at People’s Partnership, provider of the People’s Pension.
