Update on default decumulation

Decumulation Duties for DC Schemes: Progress, Detail and Direction

The Pension Schemes Bill (Bill) will bring sweeping changes to the Defined Contribution (DC) pensions regulatory landscape when it comes into force. A new duty under the Bill will require all trust-based DC occupational schemes including master trusts (In Scope DC Schemes) to provide members with one or more ‘default pension benefit solutions’. This is also known as ‘guided retirement’ and has been a key development of significant interest across the pensions industry. 

The Bill has now completed the report stage and third reading in the House of Lords. It now returns to the Commons after the Easter recess for consideration of the amendments agreed by the Lords. The expectation is that the Bill will receive Royal Assent later this Spring. 

In this article we:

• briefly summarise the new decumulation duties
• update on the passage through Parliament of these particular provisions and next statutory steps
• comment on some key related themes

Key features of the new decumulation duties

In our previous article, Pension Schemes Bill and beyond - default pension benefit solutions - Burges Salmon, we set out in more detail an overview of the proposed decumulation framework. Also, in October last year, we were fortunate to have been joined on our Pensions Pod by Hyman Robertson’s Head of DC Consulting, Kathryn Fleming, for an episode focussing on these incoming changes and the challenges they will bring: Pensions Pod “DC Decumulation: The nastiest, hardest problem in finance?”, 16 October 2025.

To briefly recap, the main ways in which members can access and use their DC pot at retirement have all, in theory, been available since the introduction of the Pension Freedoms in 2015. Those choices include, for example, taking benefits through a lifetime annuity with an insurance provider, flexi-access drawdown, uncrystallised funds pension lump sum (known as an “UFPLS”) or a pension commencement lump sum or alternatively members can transfer to another scheme. 

In practice, though, the options are often limited by the type of DC arrangement, and what these schemes offer can vary widely across the pensions industry.

Currently DC schemes do not need to offer a default decumulation option to members. The Bill marks a huge change in the way schemes need to support members approaching retirement. It will require trustees or managers of In Scope DC Schemes to design, offer and keep under review one or more default retirement options (or facilitate transfers to other arrangements that can better meet members' decumulation needs). 

This requirement is being introduced to address the problem that many pension scheme members are passive or disengaged and may be unlikely to make active choices about their pension at retirement. This lack of engagement can inevitably lead to poor financial decisions at retirement, such as choosing inappropriate income options or failing to plan adequately for longevity.

The Bill requires default decumulation options to be tailored to: 

• consider the circumstances, interests, and needs of the scheme membership as a whole (or any subset, as the trustees see fit)
• account for member circumstances such as Normal Pension Age or value of DC pots
• account for members already having received some of their benefits, e.g. as a lump sum

Further key provisions of the new regime include:

• trustees must regularly review the ongoing effectiveness and appropriateness of default decumulation solutions
• trustees must provide clear and timely communications to members approaching retirement explaining available options and signposting the default decumulation pathway
• where schemes are unable to provide a suitable default decumulation option, trustees are expected to facilitate transfers to alternative arrangements that can meet members’ retirement needs

House of Lords review: no significant changes

Through the Bill’s passage through Parliament to date, there have been no substantive amendments to the default decumulation provisions – most have been clarificatory, minor or technical e.g. to ensure all member categories were covered. Comments appeared positive, where made during debates. The new duty has been debated as a welcome addition – noting for example how the changes seem agreeable across the political spectrum. 

Therefore, it is unlikely there will be further changes to the Bill on these provisions.

Next statutory steps and timelines

The Government’s roadmap suggests a consultation on draft Regulations in mid-2026, with these then being implemented late 2026/early 2027. 

By early 2027, the Government’s plan is that master trusts must begin adhering to guided retirement requirements, with other In Scope DC schemes following in 2028. 

However, as the Bill itself has not yet been enacted, there may be a corresponding delay with these stages.

Decumulation options: the current landscape

The Pensions Regulator (TPR) assessed the range of (currently optional) decumulation products offered in occupational DC schemes through annual returns. It published a summary report on 21 May 2024, which was updated in March 2026. 

The report confirmed TPR's findings that 86% of larger schemes provided more than one option at retirement. The most popular products offered were ‘income on any other basis,’ including uncrystallised funds and lump sums. In contrast, TPR warned that smaller schemes had significant work to do, with 54% not providing any decumulation offerings at all. TPR confirmed that overall, 40% of pension schemes did not offer any decumulation options to members. 

TPR was encouraged to note that larger schemes were well-positioned to meet the new statutory requirements. Given the need to tailor to membership needs, the new duty may also encourage schemes to re-evaluate current leanings towards UPLS and drawdown, and explore a greater variety of options. However, the scale of such schemes means questions remain on how well the needs of members will be fully met, and the extent to which tailoring will be possible, particularly in the light of the cost and resourcing required. 

TPR’s finding that most smaller schemes do not currently offer any decumulation options highlights greater challenges ahead for these schemes. The resources required to design the default decumulation option as well as implement, communicate, and manage it mean that smaller schemes will need to consider resourcing to prepare for this change. Reliance on advisors is likely to increase due to unfamiliarity with decumulation options. We think it is likely that the trend will be for smaller schemes to rely on the Bill's provision enabling them to facilitate transfers to alternative arrangements that can meet members’ retirement needs.

Prospects for increased member engagement?

As flagged above, the guided retirement solutions duty comes in the context of historic problems with member engagement and beliefs on DC pension adequacy, despite the introduction of auto-enrolment.

The key requirement in the guided retirement provisions of the Bill will mean that members will be automatically placed into a default decumulation solution unless they actively choose an alternative. We consider below whether technological advancements may encourage greater member interest in the decumulation options for their DC pension pot.

With artificial intelligence usage on the rise, members may use such tools to seek input on their decumulation options, including the default option. This may provoke an increase in members questioning the suitability of the default option. Of course, any member direction solely based on AI tools could not be recommended as safe to proceed without further checks. We advise our trustee clients to regularly include warnings on member communications setting out the dangers of relying on such technology usage.

Technological rollouts, such as Pensions Dashboards, may also encourage member engagement with their default option by providing members with more information on the value of their pension benefits. Members may therefore feel more empowered to take a more critical view of their default decumulation option and to look beyond this. 

The Minister of State, Department for Work and Pensions, Baroness Sherlock, noted it is ‘in the interests of the majority to have a default solution that does not require a complex decision for those who do not engage.’ This comment suggests the Government’s view is that there is unlikely to be a significant upsurge in member engagement levels in the near future.

Guided Retirement versus Targeted Support under the FCA regime

Guided retirement under the Bill and the Financial Conduct Authority’s (FCA) targeted support regime are related but distinct UK pensions reforms designed to tackle the ‘advice gap’ and consumer inertia in DC schemes. 

They are explicitly described by TPR and the FCA as complementary: Guided retirement creates safety-net defaults for disengaged savers, while targeted support helps more engaged savers make active decisions (in relation to FCA regulated schemes and investments). Guided retirement is a statutory duty on trustees of trust-based (occupational) DC pension schemes, whereas targeted support is a new regulated activity (not a mandatory duty) that authorised firms can apply for permission to offer. 

For more information on the targeted support regime please see our previous articles: 

Targeted support and trust-based pension schemes - Burges Salmon

CP25/39: Adapting our requirements for a changing pensions market – a positive proposal but not without its challenges - Burges Salmon

Practical preparatory steps for trustees

The default decumulation duty comes at a time where DC schemes are already looking to prepare for a raft of new duties and measures introduced by the Bill, including significant changes to the Value for Money regime.

We recommend that trustees prepare by:

• engaging with regulatory guidance in a timely manner
• assessing current decumulation options offered, as to whether they are sufficiently fit for purpose (i.e. appropriate for the needs of the membership as a whole or a sub-set where more than one option is offered)
• strengthening member communications around decumulation
• exploring partnerships for decumulation solutions outside the scheme where necessary. 

Written by Laura McLay, Jaimie Buchanan and Helen Woodford.