Britain to make lifetime retirement income the default for private pensions

Elderly couple sit at a table set on the street in London, Britain July 16, 2020. REUTERS/Hannah McKay/File Photo Purchase Licensing Rights , opens new tab LONDON, Nov 3 (Reuters) - Britain will make a guaranteed income for life the default retirement option for private sector workers, under plans unveiled on Tuesday ​designed to spare millions from having to manage their pension pots ‌on their own. The government said around 17 million workers saving into defined contribution pension schemes would be guided into a lifelong retirement income option unless they choose otherwise, offering ​them some of the benefits of traditional defined benefit pensions that ​have largely disappeared from the private sector over the past three ⁠decades.

Sign up here. Defined benefit schemes pay out a set income for life, while defined ​contribution schemes simply leave savers with a pot of money at retirement. In the ​last financial year, 46% of first-time pension pot withdrawals involved the entire balance being cashed out, the government said, adding that pots worth less than £30,000 were significantly more likely to ​be fully withdrawn. Industry groups have also said that speculation over pension tax changes ​and the government's decision to bring unused pension pots into inheritance tax from 2027 prompted ‌more ⁠savers to access retirement funds.

The move is the latest step in Labour's wider overhaul of Britain's pensions system which since taking office in 2024 has focused on consolidating pension schemes into larger funds and increasing investment in productive assets. While ​automatic enrolment has ​brought millions into ⁠workplace pensions, the government said retirees are still largely left on their own to decide how to make their money ​last. The new plans would reduce the need for savers ​to make ⁠complex financial decisions by themselves.

Kathryn Fleming, head of DC consulting at Hymans Robetson, a pensions consultancy, welcomed the plans but said their success would depend on whether ⁠they ​improved outcomes for savers in practice, adding that ​regulators should avoid creating a framework that limits future innovation in the retirement market. A consultation on the ​proposals is open until December 22. Reporting by Phoebe Seers; Editing by Hugh Lawson Our Standards: The Thomson Reuters Trust Principles. , opens new tab Suggested Topics: United Kingdom Corporate Counsel Worker Rights Regulatory Oversight Employment X Facebook Linkedin Link Purchase Licensing Rights