Providers and consumer experts have welcomed proposals for how guided retirement will work. However, with most people holding more than one pension account, they warned of risks such as choice overload and confusion, the sequencing of reforms, and of potentially poorer outcomes for some savers.

On Tuesday, a panel of industry experts at the Association of British Insurers' Long-Term Savings Conference welcomed the government's recent consultation on 'default pensions' as it seeks to improve the retirement outcomes of millions. However, several also raised concerns that the new regime could make consumers more confused, require them to consolidate their pensions first or default them into inappropriate products.

Speaking on the panel, head of money policy at consumer organisation Which?, Paddy Greene was positive about the proposals on the whole but worries people could still be overwhelmed.

"The risk will be [that] what's going to happen is, we'll just shift the confusion to a different part of the journey, and they'll be facing a decision on multiple pots, so they'll be just as confused but in a slightly different area," he warned. 

Robert Holford, principal director insurance at Accenture UK and Ireland, went further: "There's a 'Catch 22' currently at the heart of this thing, which is that at the moment this looks like it's for people who have one pot... Unless we can build consolidation into the journey, then I think it's going to be really challenging to deliver this in this format."

On the other hand, those savers who actively consolidate their pots will have educated themselves about pensions through that process and be more engaged, he observed, meaning they might be less in need of guided retirement.

"So if we're genuinely looking to make this for people who are going to make very limited numbers of decisions, I think we need to make sure a lot of those decisions are taken off the table for them before they enter this journey," Holford said.

Just Group's head of policy development Jackie Spencer also fears that guided retirement could end up being yet another option in the decision process at retirement. 

"We have to look at it from a behavioural point of view: actually what are fair questions to ask to engage people [and] that are not creating just more cognitive overload, by adding one more thing into the system and one more choice," she said. 

Pension providers may gather information about their customers to improve the chances of good outcomes, but the government has not prescribed what this information should include. Greene said this could be a real challenge, as providers will need to default those who have not engaged even without a full picture of their circumstances. 

"You want to know an indication of health, but you might not get it. You want to know the housing situation, renting, mortgage, ownership, but you might not have it. You'll have to talk about the marriage situation, spousal support," before defaulting a customer, he noted.

Communication will therefore be crucial, he stressed. "We need to really clearly communicate to the consumer what data you have assumed or what you based this decision on," he said. 

A lack of health information, for example, could be risky where a retirement default involves annuitisation, warned Bernie Hickman, interim group chief customer officer at Royal London. While he too feels that there is much to like about the proposals, "on the risk side of it, it is always in the detailed implementation".

The government is "contemplating removing the FCA's restriction [requiring] shopping around and on the need to get medical underwriting or assess people's health conditions", he noted.

Stripping these safeguards out could lead to poorer customer outcomes. "You could have really ill people being defaulted into an arrangement with longevity protection with no account taken of their ill health conditions if it's implemented in a bad way," he said. 

Hickman therefore called on the industry to continue to engage with the government on the details.