The government and regulators have launched a consultation on introducing default retirement income solutions across trust-based and contract-based pension schemes, proposing a £10,000 threshold for mandatory longevity protection under its guided retirement framework.

The consultation, jointly developed by the Department for Work and Pensions (DWP), HM Treasury, the Financial Conduct Authority (FCA) and The Pensions Regulator (TPR), set out how the Pension Schemes Act 2026 provisions could be implemented.

Guided retirement will require defined contribution (DC) pension schemes to provide a default pension for members approaching retirement, aiming to protect people from running out of money in later life.

Under the proposals, pension providers would generally be required to offer longevity protection where a member's combined defined contribution (DC) pension savings held with the same provider exceed £10,000, after any pension commencement lump sum (PCLS) withdrawals.

Although providers would not be required to offer lifelong income protection below this threshold, they would still be encouraged to provide regular retirement income or longevity protection where appropriate.

DWP noted that the proposed threshold was intended to balance the benefits of providing a lifelong retirement income against the practical and commercial challenges of doing so for smaller pension pots.

Its analysis suggested that setting the threshold at £30,000 instead would exclude approximately 290,000 additional DC pension pots held by people aged 60 to 65 from mandatory longevity protection.

The consultation also confirmed that straightforward drawdown alone would not be sufficient to meet the proposed longevity protection requirements.

Instead, providers could use arrangements such as managed drawdown combined with deferred annuities, bulk annuity purchases or retirement-only collective defined contribution (CDC) pensions.

Providers would be expected to consider a range of solutions, including retirement CDC pensions, when designing defaults for different groups of members.

The government also proposed that members need to provide consent only once when entering a default pension, even if it involves different phases of retirement income.

A minimum 30-day cooling-off period is being considered, while providers would be expected to engage with members before any irreversible elements of their default pensions take effect.

Notably, members would retain the freedom to choose alternative retirement options, with payments commencing only after individuals requested access to their benefits and provided the necessary consent and payment details.

Meanwhile, the consultation also proposed that providers identify distinct groups of members based on shared needs and circumstances, with default pensions designed to meet each group's requirements.

If members do not respond to questions intended to determine the most appropriate default, providers would still have to allocate them to a suitable pre-designed option, using factual information such as age and pension pot size.

The government argued that the framework would reduce the burden of complex retirement decisions on savers while enabling schemes to benefit from economies of scale, collective risk-sharing and greater purchasing power.

In the consultation's foreword, Pensions Minister, Torsten Bell, said: "Currently we have a system that effectively encourages many people to save, but it is creating savings pots, not a true pension system."

He argued that too many people were reaching retirement without a clear plan to turn their savings into a sustainable income, warning that individuals were left to manage investment and longevity risks themselves.

"Guided retirement will require pension schemes to provide default pensions," Bell continued.

"This will help people get more from their pension savings: by harnessing economies of scale in administration and purchasing power, and collective risk-sharing, default pensions can deliver better retirement outcomes."

The consultation also sets out proposals to allow pension schemes, with members' consent, to transfer members to other providers where offering an in-house default would be impractical or another scheme could deliver better outcomes.

Further proposals cover communications, governance and oversight, including requiring trust-based schemes to document their approach in a Pension Benefits Strategy.

The government has suggested a maximum six-year review period for these strategies and default pensions, with additional reviews after significant changes to scheme membership, investment strategies, or member outcomes.

On implementation, the consultation proposes that most master trusts and FCA-regulated workplace pension providers should comply with the framework by summer 2029.

Single-employer trusts and common employer group master trusts would have until summer 2030, while master trusts using retirement collective pensions as their default would also have until summer 2030 to begin providing those benefits, subject to earlier strategy requirements.

---