Guided retirement solutions could become a critical layer of support for savers, but the success of such frameworks will hinge on improved data, segmentation and communication, according to a new report from the Pensions Policy Institute (PPI).
The PPI study notes that guided retirement frameworks—required for all defined contribution providers under the Pension Schemes Act—must operate with partial information. Schemes will need to group members into broad, data‑informed categories based on characteristics they can reasonably observe or infer.
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Mariana García Requejo, senior policy researcher at the PPI and lead author of the report, said the framework has the potential to play a critical role in helping people make retirement income decisions, but many questions lie ahead over its design and implementation. She added that competing objectives such as income security, flexibility, and simplicity present clear challenges for default solutions to meet a diverse range of member needs.
Segmentation, the report stresses, should sit at the centre of solution design. Schemes and providers must balance the use of available data against the need to keep options simple enough for members to understand and use. The report warns that income security, flexibility, simplicity and the ability to respond to changing circumstances cannot all be maximised at the same time, meaning different guided retirement designs will likely reflect different priorities across memberships.
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One‑off decisions are unlikely to be enough, the PPI notes. A guided retirement model may need to function as an ongoing, dynamic pathway that adapts as members’ circumstances evolve. This approach would affect when the pathway begins, how it changes over time, and how members are supported to revisit decisions after market shocks, health changes, shifts in household circumstances or variations in spending needs.
“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,” said Joey Patel, director of policy and pensions reform at the Pensions Regulator. Communication will be central to the effectiveness of guided retirement, alongside existing and emerging forms of support such as Pension Wise, targeted support and regulated financial advice.
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Jamie Jenkins, director of policy at Royal London, added that retirement choices could affect members’ living standards for decades. “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,” he said.
The report arrives as the pensions industry evaluates how guided retirement should operate under the Pension Schemes Act, which places greater emphasis on providing a regular income in retirement. The legislation does not specify how far solutions should mitigate risks such as longevity, inflation or investment volatility, nor the degree to which schemes and providers should guide member choice.
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