Guided Retirement: Key challenges for advisers

20 May 2025

First seen in Money Marketing

A new Pensions Bill is expected to be introduced in Parliament in the coming weeks. It promises to be substantial in scope, and one of its key provisions will be the introduction of Guided Retirement legislation for certain individuals as they approach the point of vesting their pension plans.

Guided Retirement legislation

The new rules will place a duty on trustees of defined contribution occupational pension schemes to identify and offer suitable retirement income products to members nearing retirement.

For members who are engaged in the process, trustees will present a curated selection of options, each clearly described in terms of the needs it addresses. However, where members are disengaged, a single ‘default’ retirement solution will be offered.

This marks a welcome development for retirees who lack access to financial advice. The FCA’s own analysis has revealed a worrying pattern of poor decision-making — such as married individuals selecting single life annuities, or drawdown users opting for unsustainably high withdrawal rates. It’s clear that many consumers are overwhelmed by the complexity of retirement income choices.

However, while this initiative is well-intentioned, it may create additional complexities for financial advisers, particularly when a client is placed into the trustees’ Guided Retirement process by their workplace scheme. Here are some of the key challenges advisers may face in navigating this new landscape:

Aligning occupational and retail pensions

A client is likely to have both a workplace pension and a separate retail arrangement, such as a SIPP or personal pension. Should income be taken from both independently? Do they align in terms of investment risk and return expectations? Should they be consolidated at retirement — and if so, which vehicle should be dominant? These are new coordination headaches for advisers.

Value for money comparisons

Trustees of large occupational schemes will often have the scale to negotiate highly competitive deals with retirement income providers. This could result in default solutions offering better value than those available in the retail market. In such cases, it may be difficult for advisers to justify steering clients toward alternative options.

Can advisers justify charging?

The FCA holds advisers to high standards and expects fees to be charged only when genuine advice is provided. If trustees have already done much of the preparatory work — at no cost to the client — can an adviser reasonably charge a fee simply to review and possibly endorse the trustee’s proposal?

Whose judgement carries weight?

If an adviser recommends a different course of action, will clients accept that advice over the trustee’s official default? That argument will be more persuasive if it’s framed around the client’s broader financial needs, which go beyond the generic profile considered by the trustees.

A new product learning curve

Several large pension schemes are developing bespoke retirement income solutions. Advisers will need to get to grips with these new products to provide informed advice. Options under development include:

• CDC schemes
• Flex-first, fix-later models (drawdown followed by a shift to annuity at a set point)
• Employer-less defined benefit-style schemes (pending approval by The Pensions Regulator)

Many of these products will initially exist only within trust-based occupational schemes, leaving advisers without the usual support from insurer account managers or product providers.

The trustees’ default as a benchmark

Even when an adviser recommends a different route and the client agrees, the trustees’ default option doesn’t go away. It remains an enduring benchmark — potentially a point of comparison that could haunt advisers if their recommended path yields lower outcomes due to poor market performance, higher fees, or longevity risk.

This makes the need for a clear, robust advice process essential. Meticulous documentation and a strong rationale behind recommendations will be vital. Yes, the outcome may ultimately favour the trustee’s default. Yes, the advice may technically have ‘lost’ the client money. But if the process was sound and compliant, then both adviser and professional indemnity insurer can rest easier.

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