Pensions Bulletin 2026/45

Guided retirement consultation launched

The Department for Work and Pensions (DWP), along with the Financial Conduct Authority (FCA) and The Pensions Regulator (TPR), has published a consultation setting out its proposals for the design and delivery of default pensions under the guided retirement framework introduced by the Pension Schemes Act 2026. The proposals aim to ensure that defined contribution (DC) pension savers have access to a suitable retirement income solution without having to navigate complex financial decisions themselves.

Scope: The framework will apply across trust-based and contract-based workplace pension schemes (including GPPs and group SIPPs), with the DWP and the FCA seeking to establish broadly consistent outcomes while recognising differences between the two regulatory regimes. This includes DC benefits in hybrid schemes. Notably, the consultation explicitly states that DB schemes with DC AVCs are out of scope, along with small schemes (SSASs) and Executive Pension Plans. Whole life CMP/ CDC schemes and Cash Balance schemes are also considered to be excluded from guided retirement. At an individual level, deferred members with a pot worth £1,000 or less and which meet the small pot consolidation eligibility rules (see Pensions Bulletin 2026/37) will also be excluded.

Timeline: The Government’s current proposals are that Master Trusts and FCA-regulated schemes will start to comply with these requirements by the summer of 2029. However, Master Trusts offering Retirement Collective Pensions (see article below) as a default (and with a clear development plan in place by 2029 to implement this), as well as common employer group Master Trusts and Single Employer Trusts will have to comply a year later, by summer of 2030.

Default pension design: Pension providers will be required to design or identify one or more default pensions appropriate for their membership, using evidence about members’ needs and characteristics. Rather than offering individually tailored solutions, providers will be expected to identify distinct cohorts of members with sufficiently similar circumstances and design defaults accordingly. Providers must consider the range of decumulation options available across the market, rather than limiting their assessment to in-house solutions. They will also need to consider inflation protection, flexibility over withdrawals, the ability to respond to changing circumstances and provision for spouses or dependants. The Government proposes a flexible framework that establishes minimum mandatory design requirements while allowing innovation in how sustainable retirement income is delivered.

Longevity protection and flexibility: A central requirement will be protection against longevity risk for combined DC pension pots held with the same provider above £10,000 (after any cash lump sum (PCLS) withdrawals), reflecting the risk that savers exhaust their retirement savings during their lifetime. This will mean that providers will not be able to set an upper life expectancy or target date at which the longevity protection would expire in their default pension design for these pots. Providers will have flexibility over how this protection is delivered, including through annuities, collective arrangements or other suitable approaches.

Member allocation and choice: Providers will need to establish a process for allocating members to an appropriate default pension, taking account of available information and relevant personal circumstances, and proactively communicate to members the rationale for this. The proposals are intended to preserve individual choice, and members will retain the freedom to reject their allocated default and choose another suitable option. The Government recognises that some individuals may have particular needs, such as significant ill health, debt or other complex circumstances, which may make a standard default unsuitable. Providers will be expected to consider these circumstances and provide appropriate support to vulnerable customers.

Governance: The proposed framework will require robust governance, evidence-based design and ongoing monitoring to ensure that default pensions continue to meet members’ needs and deliver the intended outcomes. This includes producing a “pension benefits strategy” that must be reviewed at least every six years which should focus on member needs as they relate to default pensions. Providers will remain responsible for compliance even where third parties supply products or services used in the design or delivery of a solution. Costs and charges must be fair and reasonable, with conflicts of interest and the risk of individuals overlooking the costs and charges associated with their default pensions appropriately managed. The consultation also notes that the RCPS consultation (see article below) proposes to include a charge cap for those schemes and asks whether a cap should also apply to other arrangements used to provide default pensions.

Providing default pensions through another scheme: The consultation also sets out proposals for trust-based schemes to use another provider’s default pension where it meets the members’ needs (this builds on the principle set out in the Pension Schemes Act 2026). Transfers would require member consent, formal agreements between schemes and appropriate checks on the receiving provider.

The Government also states that it intends to extend the Value for Money framework to decumulation in the future.

The consultation runs until 21 December 2026, with feedback intended to inform subsequent secondary legislation from DWP and FCA rules (according to the Government’s pensions reform roadmap, these will not be published until summer 2027, and this is acknowledged in the consultation).

Retirement Collective Pension Schemes to move forward

The DWP has published its response to the policy consultation on Retirement Collective Pension Schemes (RCPS) (previously commonly referred to as Retirement Collective Defined Contribution schemes or R-CDCs), alongside the consultation on draft implementing regulations (see Pensions Bulletin 2025/43). This forms part of the government’s consultation package on retirement from DC schemes, together with the consultation on guided retirement (see article above).

The government intends to proceed broadly as proposed, with changes including:

• Not proceeding with the proposed explicit prohibition on promotion and marketing to members and prospective members. DWP considers this to be disproportionate given RCPS will not operate in a retail environment and only be accessible through guided retirement, at least initially.
• Some changes to the proposals on the valuation and adjustment methods, including retaining the “upper threshold” and the existing rules on spreading benefit reductions, thus bringing the valuation method back in line with unconnected multiple employer CDC schemes (UMES).

Following consultation, DWP also proposes to set a charge cap of 0.75% pa of the collective fund, which is in line with the headline cap for UMES and qualifying DC default arrangements, and DWP is seeking views on this charging framework. DWP further notes respondents’ concerns on RCPS illustrations, and points to the consultation on guided retirement (see article above) and FRC’s discussion paper on alternative illustrations for decumulation (see article below).

The draft legislation consultation explores how the existing CDC and in particular UMES framework might be amended so it can deliver the RCPS policy intent. This includes partial and subsequent transfers into the RCPS, details of the design and valuation framework, and member communication and pension quotations. It also seeks views on flexibility around inflation targeting, including whether new cohorts should target increases of at least CPI. The consultation document notes the interaction with tax legislation which will also need to be amended (see article below).

The draft regulation consultation closes on 15 December 2026. 

FRC considers additional pension illustrations for retirement

The Financial Reporting Council (FRC) has published a discussion paper exploring how additional standardised pension illustrations could help trust-based defined contribution (DC) savers understand their retirement income options, both before and after accessing their pension savings.

The paper discusses how illustrations could be developed to reflect the Government’s guided retirement proposals, under which pension schemes will be required to offer default pension benefit solutions to eligible members (see article above).

For members in the accumulation phase, the paper considers illustrations for a range of decumulation options, including immediate annuities, variants of “flex and fix”, and the new RCPS option (see article above).

For those who are in the decumulation phase but have not (yet) fully converted their DC pot into regular non-flexible income such as an annuity or a RCPS, the FRC considers how illustrations could help members understand the sustainability of their withdrawals and how long their pension savings might last. It also considers how illustrations or examples could explain the impact of taking a pension commencement lump sum (PCLS) on future retirement income.

The FRC is seeking views on the assumptions underpinning these illustrations, including investment returns, expenses, inflation, mortality and annuity pricing. It also asks whether illustrations should reflect the specific features of a scheme’s default retirement solution or use more standardised assumptions.

Responses are invited by 26 January 2027.

FRC reviews statutory DC pension illustrations

The Financial Reporting Council (FRC) has launched a post-implementation review of Actuarial Standard Technical Memorandum 1 (AS TM1), which governs the assumptions and methods used to calculate statutory money purchase illustrations (SMPIs).

The review follows the introduction of AS TM1 v5.0 in October 2022 (although the latest version is 5.2, and version 5.3 is being consulted on, see Pensions Bulletin 2026/43) and seeks views on whether the standard remains appropriate as the DC pensions market evolves.

A key area of focus is the methodology for determining investment return assumptions. The current approach groups funds according to their historic volatility, with prescribed accumulation rates for each group. However, concerns have been raised that this can produce inappropriate outcomes for certain investments, particularly index-linked gilt funds.

The FRC is therefore considering whether to retain the existing volatility-based approach, amend it or move towards an asset-class methodology, under which accumulation rates would reflect the underlying investments. It also seeks views on how multi-asset funds should be treated.

The review also considers the assumption used to convert projected pension savings into retirement income. Currently, SMPIs assume the purchase of a level, single-life annuity with a five-year guarantee. Given the growth of drawdown and the development of guided retirement solutions (see article above), the FRC asks whether this remains an appropriate basis for illustrating retirement income.

Other areas under consideration include the inflation assumption, future contributions, expenses, annuity pricing and the treatment of pension commencement lump sums.

The FRC is inviting feedback by 26 January 2027.

TPR guidance on the use of AI by pension schemes

TPR has published guidance on the use of artificial intelligence (AI) in pension schemes, building on its AI plan published in May (see Pensions Bulletin 2026/21).

The guidance, which is aimed at trustees and scheme managers, explains how existing legal duties and regulatory expectations apply to the use of AI in running pension schemes, including its use by advisers and other service providers. The guidance sets out seven key principles as follows:

• Start with the problem, not the technology - use AI to solve real problems and support better member outcomes, efficiency and value for money.
• Human responsibility remains central - trustees remain accountable, including where work is outsourced. AI should support, not replace, trustee judgement and meaningful challenge.
• Governance is ongoing, not one-off - keep AI risks and controls under review throughout its lifecycle. Oversight and human involvement should be proportionate to the risks.
• Plan for disruption - understand AI dependencies and include them in business continuity planning, so the scheme can keep operating if AI fails or becomes unavailable.
• Good AI starts with good data - use accurate and appropriate data. You should understand its limitations and protect it through effective data handling and data protection arrangements.
• Transparency and explainability underpin trust - consider what members need to understand where AI affects them and be able to explain AI-informed decisions.
• Support fair and accessible outcomes - address bias, reflect vulnerable and digitally excluded members’ needs, and ensure outcomes comply with scheme rules.

The guidance then addresses a range of governance and risk management issues. Trustees are expected to identify significant uses of AI, understand their purpose and related risks, establish clear accountability and keep arrangements under review. TPR suggests possible governance tools, including AI registers, risk logs and policies.

Particular emphasis is placed on the use of AI by advisers and other service providers. Trustees should seek appropriate assurances about how AI is used, controlled, tested and monitored. This includes where AI functionality is introduced into existing services through software updates. Trustees should consider what action is needed if those assurances are inadequate.

TPR also stresses the importance of maintaining human oversight and judgment, particularly where AI influences decisions. Trustees should be able to explain how AI generated outputs have been assessed and who is responsible for the resulting decisions. Other risks highlighted include inaccurate or biased outputs, poor quality data, data security, inappropriate use of AI and business continuity risks.

Government confirms changes to anti-scams legislation

The DWP has published its response to its consultation on amendments to the Occupational and Personal Pension Schemes (Conditions for Transfers) Regulations 2021 (SI 2021/1237) (see Pensions Bulletin 2026/23). These regulations and the proposed amendments are designed to protect pension scheme members from fraud.

The Government intends to proceed with the amendments broadly as proposed, but has announced an additional “amber flag” for transfers into small self-administered schemes (SSASs), with such transfers also falling outside the proposed exemption from repeat Money and Pensions Service guidance.

To recap, the DWP intends to broaden the “First Condition”, under which statutory transfers can proceed without the more extensive checks required by the “Second Condition”, to include transfers to schemes which the transferring trustees consider to be “reputable”.

The assessment of whether a receiving scheme is “reputable” will be made on the balance of probabilities and DWP will work with TPR to develop a non-exhaustive list of factors to assist trustees in making this judgement. Despite reservations among respondents about the inherent subjectivity of the term “reputable”, the Government has decided to keep it.

The Government is also proceeding with a new red flag where evidence does not demonstrate an employment or other relevant relationship between a transferring member and the receiving occupational pension scheme. However, recognising concerns expressed that members seeking to make legitimate SSAS transfers may not be able to provide conventional evidence of an employment link, it undertakes to provide trustees with details of the type of information and evidence which may be considered when making this assessment.

The other proposed changes are largely unchanged. The overseas investments amber flag will be removed, while members who have received MaPS scams guidance within the preceding 12 months will generally not have to repeat it for a subsequent transfer, except for transfers to SSASs.

No amended regulations have been published with this consultation response. The DWP states that these will be laid in due course, with planned commencement in April 2027.

HMRC newsletter 186 adds detail to Budget pension tax changes

One day after the 28 October Budget (see Pensions Bulletin 2026/44), HMRC issued Pension Schemes Newsletter 186 which fleshes out some of the Budget’s pension tax announcements.

Much of the newsletter expands on the proposals regarding Retirement Collective Pension Schemes (RCPS) (which have variously been referred to previously as RCDC and RCMP schemes – including in the newsletter) and guided retirement.

These include:

• Changes to the tax rules already in place for whole-life CDC schemes, so that they can be applied to RCPS as currently envisaged (see article above). In particular, reference points for calculations of maximum pension commencement lump sum and maximum annuity protection lump sum death benefit will take into account the “scheme pension purchase price” when members transfer their DC pension pot into a RCPS. Members will be able to transfer all or part of their drawdown fund directly to a RCPS. RCPS will also be able to apply different rates of pension reductions to different “cohorts” of members, a new concept not available to whole-life CDC schemes.
• An optional conversion from a RCPS pension back to drawdown, potentially for a period of up to one year from the date the member becomes entitled to the collective pension. It would be up to schemes to decide whether to provide this option, so it would not be an automatic member right. The first drawdown payment would trigger the money purchase annual allowance unless already triggered.
• To ease administrative challenges associated with DC consolidation and guided retirement, proposals are made on wider retention of pension-age and lump-sum protections on specified transfers, although what will happen to protected tax-free cash where DB rights remain behind is unresolved. 

HMRC also invite engagement with roundtables expected to be held in the new year and confirm that they are liaising with DWP on the linked consultations on guided retirement and RCPS.

With regard to the removal of the two-year pension death benefit rule, the newsletter instructs administrators to stop deducting income tax solely because relevant death benefit lump sum payments are made or relevant funds are designated outside the two-year period with effect from 28 October 2026.

Other Budget related items in the newsletter include introductions to the policies on access to pensions for the terminally ill and tax on excess pension lump sum death benefits.

The newsletter then also notes that digitalised processing of relief-at-source claims service is further delayed until sometime in the 2027/28 tax year, with at least one month’s notice promised and existing arrangements continuing in the meantime. HMRC also introduces a pension tax refund triage tool.

PDP clarifies process for deleting confirmed matches

The Pensions Dashboards Programme (PDP) has issued guidance clarifying how schemes, providers and their connection providers should delete pension identifiers (PeIs) erroneously registered as definite matches. The guidance addresses current ambiguity in the technical standards around the use of the match deletion code “match-withdrawn” to now distinguish between:

• Matching errors: where the wrong person has been matched to a pension, the deletion reason “match-withdrawn” should be used; and
• Registration errors: in cases such as duplicated identifiers for the same correctly matched person and pension, the deletion reason “asset-removed” should be used, extending that code’s use beyond pensions that are no longer reportable.

Where system changes cannot be made immediately, directly connected organisations should record the underlying reason for each match-withdrawn deletion and report this information monthly to the Money and Pensions Service (MaPS) through the PDP support portal. MaPS intends to incorporate the distinction into the compulsory technical standards in due course.

The guidance also reminds schemes and providers to investigate, assess and document any disclosure of pension information that may have been made to the wrong person, making any required notifications. 

Auto-enrolment thresholds to remain unchanged for 2027/28

The DWP has published the statutory review of the earnings trigger and qualifying earnings band to be used for auto-enrolment purposes for 2027/28. The Secretary of State for Work and Pensions has decided that these should continue to be frozen pending the Pensions Commission report on adequacy, which is expected in February 2027.

Therefore, the earnings trigger remains at £10,000 while the Lower Earnings limit is to be maintained at £6,240 and the Upper Earnings Limit will continue to be capped at £50,270.

The DWP estimates that freezing the earnings trigger will result in an increase of 48,000 auto-enrolled into private-sector pension schemes, taking the total to 17.4 million. It also estimated that the total amount saved (including employer and employee contributions and tax relief) will exceed the £100 billion mark in 2027/28, up from £98 billion in 2026/27.

No changes following fourth triennial review of auto-enrolment quality tests

The DWP has published its response to the call for evidence on the alternative quality requirements that employers can use to demonstrate that their DB, DC, hybrid and CDC schemes meet the minimum standards for auto-enrolment (see Pensions Bulletin 2026/24).

This is another periodic review which the Secretary of State is required to undertake, in this case at least every three years. For DB schemes and DB sections of hybrid schemes, the conclusion is that the alternative tests offer a simpler route than the burdensome test scheme standard. The response also reviews the separate alternative requirements for DC and CDC schemes.

The DWP acknowledges that respondents raised concerns about aspects of these tests, including their application to schemes with final pensionable salary caps and conditional indexation. However, it does not consider these to merit changes to the existing requirements. 

Regulation of ESG ratings providers

Following draft legislation laid in October 2025 (see Pensions Bulletin 2025/43) the Financial Conduct Authority (FCA) has finalised its authorisation regime for environmental, social and governance (ESG) ratings providers.

Details of the regime are set out in PS26/22: ESG ratings: final regime. From 29 June 2028, firms providing ESG ratings in the UK will need FCA authorisation and the relevant permission, unless an exclusion applies.