Key Takeaways
- • The U.K. Autumn Budget, released October 28, proposes tax changes intended to remove obstacles to consolidating smaller defined contribution (DC) pension schemes into larger, consolidated funds.
- • The budget also supports the Pension Schemes Act 2026 requirement that DC plans offer default retirement income options to participants approaching retirement.
- • The changes are expected to be introduced through the Finance Bill 2027-28, alongside tax provisions for guided retirement and retirement-only collective defined contribution (CDC) plans.
- • WTW estimates retirement CDC could produce expected income roughly 40% higher than an individual lifetime annuity, though actual payments could rise or fall depending on assumptions.
Summary
The U.K. government is moving to clear tax obstacles to its goal of consolidating smaller defined contribution pension schemes into larger, consolidated funds, and to enable the development of default income options for retirees. Both priorities stem from the 2026 Pension Schemes Act, which received Royal Assent in April and provides a framework for reforming workplace defined benefit and defined contribution plans in the U.K., according to Chief Investment Officer.
The Autumn Budget, released on October 28, builds on that framework with proposed tax changes designed to make consolidation and new retirement-income arrangements easier to implement. Consolidation aims to combine numerous small DC plans into fewer, larger plans, each potentially holding billions of pounds in assets, allowing them to invest more cheaply and more broadly through scale. The Act also requires DC plans to offer default retirement income options for members approaching retirement.
The proposed changes are expected to be introduced through the Finance Bill 2027-28, together with tax provisions supporting guided retirement and retirement-only collective defined contribution plans. Retirement-only CDC plans would allow an individual to transfer an accumulated pension balance into a collectively managed fund that pays retirees an income for life.
Simon Eagle, head of CDC and Risk Sharing at WTW, said DC schemes will soon have to offer default solutions for converting pension pots into retirement income, and that Retirement CDC pools longevity risk so members receive income for as long as they live without being locked into the low-return investments that underpin annuities. WTW estimates retirement CDC could produce expected income approximately 40% higher than an individual lifetime annuity, though the comparison depends on the assumptions used and actual payments could rise or fall. Eagle also noted that a member cooling-off period would address trustee concerns about adopting Retirement CDC as a default, letting members change their minds in the short term, a feature he said is similar to those offered by some international schemes.
The Autumn Budget, released on October 28, builds on that framework with proposed tax changes designed to make consolidation and new retirement-income arrangements easier to implement. Consolidation aims to combine numerous small DC plans into fewer, larger plans, each potentially holding billions of pounds in assets, allowing them to invest more cheaply and more broadly through scale. The Act also requires DC plans to offer default retirement income options for members approaching retirement.
The proposed changes are expected to be introduced through the Finance Bill 2027-28, together with tax provisions supporting guided retirement and retirement-only collective defined contribution plans. Retirement-only CDC plans would allow an individual to transfer an accumulated pension balance into a collectively managed fund that pays retirees an income for life.
Simon Eagle, head of CDC and Risk Sharing at WTW, said DC schemes will soon have to offer default solutions for converting pension pots into retirement income, and that Retirement CDC pools longevity risk so members receive income for as long as they live without being locked into the low-return investments that underpin annuities. WTW estimates retirement CDC could produce expected income approximately 40% higher than an individual lifetime annuity, though the comparison depends on the assumptions used and actual payments could rise or fall. Eagle also noted that a member cooling-off period would address trustee concerns about adopting Retirement CDC as a default, letting members change their minds in the short term, a feature he said is similar to those offered by some international schemes.
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