Plan to give 17 million private sector workers a guaranteed income in retirement

Around 17 million private sector workers saving into a workplace pension are set to be offered a guaranteed income in retirement, under government plans to bring back what ministers call "genuine pensions".

The proposals, launched by Pensions Minister Torsten Bell at the Association of British Insurers' Long-Term Savings Conference, would require pension schemes to offer a default retirement income to members, instead of leaving them to work out on their own how to turn a savings pot into money to live on.

From savings pots to pensions

Over the last 30 years, most private sector defined benefit schemes, which paid an income for life, have closed. Automatic enrolment has transformed saving since 2012: nine in ten eligible private sector workers are now saving, up from four in ten. But most save into defined contribution pensions, which leave them with a pot of money at retirement rather than a secure income.

The government says that in 2025/26, around 46% of people accessing a pension pot for the first time withdrew it in full.

Under the plan, called Guided Retirement, schemes would have to provide a default pension for savers approaching retirement, often with protection against rising prices, so people do not have to "become investment experts overnight".

A new kind of pension

One option is the Retirement Collective Pension Scheme, which pools risk across many members to provide a fully managed income for life. The government has published draft regulations so these schemes can be used as a default.

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."

Choice stays

The government stresses that savers will still be free to choose a different option if they want to. The default is aimed at people who do not want to navigate complex decisions alone.

Therese Chambers, executive director at the Financial Conduct Authority, 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."

What happens next

These are proposals, not yet the law. Two consultations have opened: one, run jointly with the Financial Conduct Authority and the Pensions Regulator, on how default pensions should work in practice; and one on the draft regulations for collective schemes.

For the hundreds of thousands of people in Birmingham who work in shops, factories, offices and warehouses and pay into a workplace pension, the change could mean a clearer, steadier income when they stop work, more like the pensions many public sector workers already have.

Anyone wanting free, impartial guidance on their own pension can contact MoneyHelper, the government-backed service, or Pension Wise if they are aged 50 or over.