The report, “Designing Guided Retirement Solutions: Meeting Member Needs”, sponsored by now:pensions (part of Mercer), The Pensions Regulator, Royal London, Scottish Widows and WEALTH at work, outlines how the Guided Retirement framework will need to operate in order to provide a new and effective layer of support for individuals reaching retirement. The research shows that solutions will need to use partial information, grouping individuals into broad, data-informed categories based on characteristics that schemes can reasonably observe or infer.
The study states that segmentation will need to be placed at the centre of solution design, balancing the competing objectives of using available information to design meaningful pathways, while also remaining simple enough for members to engage with.
In addition, the report notes that while the recently passed Pension Schemes Act emphasises the provision of a regular income, it does not specify the extent to which solutions should seek to mitigate risks such as longevity, inflation, or investment volatility, or the degree to which schemes and providers should guide member choice. The analysis reveals that related objectives such as income security, flexibility, simplicity, and the ability to respond to changing circumstances over time cannot all be maximised simultaneously, meaning different approaches to design will reflect these varying priorities among memberships.
As a result, Guided Retirement may need to operate as an ongoing, dynamic pathway, rather than a one-off decision at the point of access, creating implications for when the pathway begins, how it evolves over time, and how members are supported to navigate shocks and revisit decisions. The investigation also finds that member communications will play a critical role in this area, underlining more widely that the effectiveness of Guided Retirement will be shaped by how it interacts with existing and emerging forms of support, including Pension Wise, targeted support, and regulated financial advice.
The examination provides a new independent evidence base to better understand the implications of the new changes for stakeholders across the sector.
Mariana García Requejo, PPI Senior Policy Researcher and lead author of the report, commented: “Guided Retirement has the potential to play a critical role in improving how individuals navigate retirement income decisions, but many questions lie ahead over its design and implementation. Competing objectives such as income security, flexibility, and simplicity present clear challenges for default solutions to meet a diverse range of member needs. In order to meet them as best as possible, it’s vital these solutions are understood as a gradual development towards a new layer of retirement support within the UK pensions system, rather than a single product innovation. During this crucial next phase of regulatory development, the PPI is delighted to deliver new independent insights to support informed Guided Retirement policy decision-making.”
Lizzy Holliday, Director of PA and Policy at Mercer’s now: pensions, said: “Guided Retirement represents an important step forward in supporting savers at retirement but there is further work to do to enable successful delivery. The report highlights how the risks faced by DC savers at retirement interact with key policy concepts. For example, the ‘default’ nature of the solution, regular income requirement, engagement and communications. We hope this report provides useful insights for government, regulators and industry - who are working hard to turn concepts into good outcomes for all savers.”
Joey Patel, Director of Policy, Pensions Reform, at The Pensions Regulator, said: “Members need more help to turn a savings pot into a sustainable retirement income and default pension benefit solutions have the potential to make a real difference. We urge schemes to start preparing now by getting to know their members, improving their data and considering how they will design and implement defaults that truly deliver better outcomes for members.”
Jamie Jenkins, Director of Policy at Royal London, said: "The decisions people make at retirement about their pension savings can shape their quality of life for decades. Good decisions can ensure financial security, but poor decisions could expose people to running out of money, reliant on the state for a basic level of support in their later years. In an ideal world, professional financial advice would be available to everyone, but this simply isn't the reality for most people reaching retirement today. The alternative idea of guiding people through their retirement choices therefore becomes crucial, and the Pensions Policy Institute’s report provides a rich source of analysis and represents an important contribution to the debate."
Carolyn Jones, Retirement Director, Scottish Widows, stated: “Individuals are now facing an increasingly complex range of decisions at retirement, as they balance longer life expectancies, rising costs and often modest pension savings. Well-designed guided retirement solutions can play a critical role in helping people simplify the decisions they need to make about how to use their pot to provide a sustainable income. Guided retirement needs to sit alongside other support and advice to ensure people can make retirement choices that meet their needs.”
Jonathan Watts-Lay, Director, WEALTH at work, added: “Retirement decisions are complex and highly personal, and experience shows most people want support with this. A generic default pathway risks people sleepwalking into choices that don’t fit their circumstances or meet their needs, particularly as many retirees are likely to have multiple pension pots with varying amounts saved into each. The PPI’s research highlights how Guided Retirement can potentially improve outcomes; however, many members will need personal guidance to help them understand the options available and ensure they make an informed decision across all of their pensions.
We have had a lot of interest shown in Retirement Guidance services as a means of helping individuals to understand their options prior to making any decision. This type of support, alongside digital services and tools, are likely to become best practice as Guided Retirement solutions are launched. Specialist workplace providers who can deliver tailored, high-quality and robust retirement support at scale will be key to its success.”
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