Default guided retirement solutions for defined contribution pension holders could expose millions of retirees to financial losses, according to new research from the Behavioural Insights Team (BIT).

The study, commissioned by the Institute and Faculty of Actuaries, evaluated four retirement income models against behavioral evidence on pension decision-making: drawdown, immediate annuities, flex and fix, and retirement collective defined contribution (CDC). Under the Pension Schemes Act 2026, DC trustees must offer default guided retirement solutions converting savings into regular income unless members opt out.

BIT found that options demanding sustained member engagement risk neglect as inertia rises and cognitive abilities decline with age, potentially leading retirees to withdraw too much or too little. This leaves savings exposed to inflation and poor investment choices—a serious concern given that the Pensions Commission recently found three-quarters of DC savers over 40 have no plan for accessing their pot.

Open-ended drawdown cannot serve as a lifetime default, the report concluded, though it may suit smaller pots. Flex and fix arrangements—provided the fix is automated rather than optional—and retirement CDC, contingent on member trust and comprehension, emerged as stronger candidates. BIT also urged regulators to establish legal safe harbors, giving trustees confidence to adopt evidence-based defaults without fear of irreversible missteps.

As the UK prepares to implement this new regime, scheme design that reflects real behavioral patterns—rather than idealized engagement—will determine whether guided retirement delivers genuine protection or repeats the pitfalls of pension freedoms.