Default retirement offerings pose a difficult problem for DC pension schemes and trustee boards, as Ortec Finance’s Mark Glover explains – but the challenge is not insurmountable.
The UK pensions landscape is about to go through one of its most transformative developments since the pension freedoms were introduced. The Pension Schemes Act 2026 has created a statutory obligation for trustees of defined contribution (DC) schemes to offer members a default retirement income solution, officially known as “guided retirement”.
The idea draws on the same logic as auto-enrolment: to improve outcomes, build a sensible default and make inertia work in members’ favour. The implementation challenge, however, is harder than the headline suggests, and most schemes are not yet positioned to meet it.
The information problem
Delivering a credible default income solution requires understanding more about a member than most schemes currently do. Trustees can generally only see what is in a member’s pot; they can’t see further details like other income sources, savings, property, likely expenditure and dependants. This raises questions around whether a given income strategy is appropriate for a given member.
Whether trustees can gather this information about their members gets complicated when we consider that this is where guided retirement runs into the advice-guidance boundary. Constructing a recommendation based on a member’s broader financial position looks a lot like regulated advice, yet most trust-based schemes do not hold the permissions or the liability framework that regulated advice requires.
Targeted support is designed to occupy the space between the two. The new regime, which came into force in April this year, allows authorised firms to make product recommendations to defined groups of consumers with common characteristics, without triggering the full requirements of individual advice. For FCA-regulated schemes, this provides a potential answer to what I’ve described as ‘the information problem’.
Meaningful segmentation
Targeted support only works if the groups it defines are meaningful. People aged 60 to 70 with pots above £50,000, for example, span a wide range of circumstances so a single recommendation applied to that group is not targeted support in any substantive sense.
This is where some schemes that already offer a regular income product fall short. According to the Pensions Regulator, just under a quarter (24%) of schemes offer regular income in-scheme products. Of those, just 5% offer two or more of these products.
How can a single product possibly be appropriate for all members? The practical answer is better member data, and better tools to model what that data implies, because more precise segmentation is likely to result in better outcomes for scheme members.
Guided retirement offers a real opportunity to improve retirement outcomes for millions of DC savers. Some 43% of DC occupational schemes currently offer no decumulation products at all, according to TPR data, published in March.
In addition, master trusts must begin offering guided retirement default solutions from spring 2027. For those schemes, that’s not a lot of time to get everything in order.
Trustees must consider how to deliver these changes in the context of the best outcome for scheme members. Fortunately for them, the tools, technology and regulatory regime exist to ensure members can benefit from some degree of personalisation without straying into financial advice.
Mark Glover is managing director and head of UK and Ireland Wealth Management at Ortec Finance.
