The government is moving forward with plans to reform how pension savings are converted into retirement income. The aim is to address concerns that many workers are not saving enough for retirement, with a particular worry that, since the introduction of pension freedoms in 2015, too many people are withdrawing too much of their private pension ‘pot’ the moment they hit retirement, leaving themselves financially vulnerable in later years.

Two key changes are being proposed: “guided retirement” and new retirement “collective” pensions. The Department for Work and Pensions (DWP) is leading these initiatives, with the goal of “resurrecting” pensions that offer a secure, often inflation-protected income for life, without the need for complex financial decisions.

Retirement Collective Pensions: Pooling Risk for Stability

Retirement collective pension schemes (RCPS), also known as collective defined contribution (CDC) schemes, are being consulted on until December 21, 2026. These schemes aim to pool risk across members, providing a fully managed pension that ensures stability and growth. The DWP believes RCPS will be a key component of guided retirement, offering a reliable default option that addresses the issue of excessive withdrawals from private pension pots.

Addressing Retirement Income Challenges

Data highlights that in 2025/26, 46% of first-time pension pot accesses involved the pot being fully withdrawn. This trend shows the need for reforms, which the government is linking to its broader plans for later-life care. The Financial Conduct Authority’s executive director, Therese Chambers, supports guided retirement, stating it simplifies the process of turning savings into income. Kathryn Fleming from Hymans Robertson stresses the importance of high-quality defaults that align with member needs and improve outcomes through effective communication.

A survey of 500 small and medium-sized employers revealed that 45% believe financial pressures prevent younger workers from prioritizing long-term saving. Additionally, 37% feel younger employees view a comfortable retirement as unrealistic, while 36% think they are less engaged with pensions than previous generations. The same percentage (36%) criticizes the pensions industry for not adapting quickly enough to changing workforce expectations. Notably, 33% believe better financial education from a younger age could significantly improve future retirement outcomes. This research was published during ‘Talk Money Week,’ which runs until 6 November.

Nic Paton, consultant editor at Personnel Today and a leading workplace health journalist, has been covering these issues since 2001, providing valuable insights into the changing market of workplace pensions and employee well-being.