Default guided retirement solutions for defined contribution (DC) pension holders risk exposing millions of retirees to financial losses, a study by the Behavioural Insights Team (BIT) has warned.

The Pension Schemes Act 2026 requires trustees of DC schemes to provide default guided retirement solutions that convert members’ savings into a regular lifetime income unless the member actively chooses otherwise.

Research by BIT, commissioned by the Institute and Faculty of Actuaries (IFoA), assessed four retirement income models: drawdown, immediate annuities, flex and fix (including blended variants), and retirement collective defined contribution (retirement CDC), against behavioural evidence on pension decision making.

It found that options requiring members to remain actively engaged later in life risked being neglected as inertia increases and cognitive abilities decline.

The report warned that pensioners could risk withdrawing too much or too little from their pension, leaving their savings vulnerable to inflation and poor investment decisions.

This comes as the Pensions Commission recently found that three-quarters of DC savers over 40 years of age had no plan for accessing their pot.

The report found that open-ended drawdown cannot serve as a lifetime default, although it could have a role for smaller pots, and the immediate annuity was better suited to being a component within a guided journey than a standalone default.

It recommended flex and fix, provided the fix is automated or defaulted rather than optional, and retirement CDC, provided member comprehension and trust can be established and maintained.

The report also looked at the increasing challenge facing trustees, who may feel driven to default savers into flexible drawdown to avoid making irreversible decisions on members’ behalf.

As drawdown required ongoing engagement, the authors argued regulators should introduce legal safe harbours that give trustees confidence to adopt evidence-based defaults while protecting less engaged savers.

BIT principal advisor and the head of consumer markets and online safety, Sujatha Krishnan-Barman, commented: “Guided retirement solutions are an important development, rightly aimed at bolstering the protections for pensioners who have to make complex choices around their pension pots, while ensuring they will be able to access their savings throughout their retirement.

“But if designs for retirement options don’t take into account the factors that affect decision-making in retirement, including cognitive decline, this new regime could lead to millions of pensioners suffering from financial losses.

"Defaults only work if they're built around how people actually behave, not how we'd like them to. That's the only way the path of least resistance reliably leads to a secure income.”

IFoA president, Paul Sweeting, added: “A generation ago, the Pensions Commission set the template for how reform is done well: assemble evidence, build consensus, and design a system that works with human nature rather than against it.

"Automatic enrolment transformed retirement saving not by turning millions of people into financial experts, but by making the path of least resistance a good one.

“Guided retirement is this generation's equivalent challenge, but it is harder. A decade of pension freedoms has shown what can happen when individuals face complexity without guidance or guardrails, and the results can be devastating."

---