A new government bill will see small pension pots consolidated, create larger schemes, and ensure they are good value for money
Millions of employees are set to benefit from a boost to their pension pots, potentially seeing increases of thousands of pounds due to a new government bill aimed at consolidating smaller pensions into larger, value-for-money schemes. On average, workers could see an improvement of up to £29,000 because of the changes.
The incoming legislation will amalgamate small pension pots, specifically those valued at £1,000 or under, into single, certified schemes that guarantee savers value for money. An estimated 20 million pension savers will find these reforms beneficial in bolstering their retirement preparedness.
The Pension Schemes Bill returned to Parliament for its second reading on Monday, July 7, and will now proceed to the committee stage for scrutiny.
Some within the pensions industry and consumer groups have endorsed the reforms, as many workers find it challenging to manage multiple small pensions accrued from changing jobs and often incur high fees that drag down their retirement income. The reforms follow a long-awaited scheme to make it easier for workers to keep track of their pots through an online pensions dashboard.
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Pensions Minister Torsten Bell commented on the speed of these reforms: “We’re ramping up the pace of pension reform, to ensure that people’s pension savings works as hard for them as they worked to save.
“The measures in our Pension Schemes Bill will drive costs down and returns up on workers’ retirement savings – putting more money in people’s pockets to the tune of up to £29,000 for an average earner and delivering on our Plan for Change.”
In the future, pension schemes will be required to demonstrate their value for money, ensuring savers are well-informed about their scheme’s performance and safeguarding them from being trapped in underperforming schemes for extended periods, reports the Manchester Evening News.
These initiatives will set the stage for the forthcoming Pensions Review, which is part of the Government’s strategy to explore avenues towards a fair and sustainable pensions system while fostering growth.
Other measures include:
- New rules creating multi-employer DC scheme “megafunds” of at least £25 billion, so that bigger and better pension schemes can drive down costs and invest in a wider range of assets.
- Simplifying retirement choices, with all pension schemes offering default routes to an income in retirement.
- Increased flexibility for Defined Benefit (DB) pension schemes to safely release surplus worth collectively £160 billion, to support employers’ investment plans and to benefit scheme members.
Minister for Local Government and English Devolution Jim McMahon OBE commented: “This Bill will ensure the Local Government Pension Scheme is fit for the future and harness its full potential, with assets due to reach £1 trillion by 2040, and will strengthen investment in local communities to accelerate growth as part of our Plan for Change.”
The Government asserts that the reforms will also catalyse long-term investment in the UK’s economy by eliminating barriers to growth, enhancing the security and governance of pension schemes, and ultimately providing better returns for those saving for retirement.
Zoe Alexander, Director of Policy and Advocacy for PLSA, remarked: “The introduction of the Pension Schemes Bill is a significant milestone, bringing forward necessary legislation to enact important reforms that have the full backing of the pensions industry.
“This includes small pots consolidation, the Value for Money regime, decumulation options and changes to give DB funds more options for securing member benefits over the long-term.
“Once fully implemented, these measures should reduce the cost of administering pensions, remove complexity for savers and help ensure schemes are maximising the value they provide members.”