Rachel Reeves’s flagship pension reforms have come under fire amid damning new evidence that they will deliver only minimal gains for workers’ retirement savings.
A government impact assessment has revealed that changes introduced under the new Pension Schemes Bill will provide just “slightly greater expected returns” for savers, directly undermining Ms Reeves’s promise of “bigger pots” for millions.
The Bill, which is expected to become law next year, hands regulators sweeping new powers to push pension schemes to invest more in UK-based private markets, such as start-ups and infrastructure projects, rather than traditional investments like government bonds or global shares.
But official projections suggest the measures would add just £5,000 to an average pension pot over 30 years – the equivalent of around £3 a month in retirement income.
Sir Steve Webb, the former Lib-Dem Pensions Minister and now a partner at pension consultancy LCP, warned that the reforms appear to be more about economic optics than real improvements for savers.
“The Government’s primary objective in changing the way pension funds are invested is to boost the UK economy rather than to boost individual pensions,” he said.
“The Government’s own projections suggest that even after several decades of the new approach, the impact on individual pension pots is likely to be slight.
“Given that we clearly have an under-saving crisis in the UK, with millions set for a disappointing retirement, there needs to be much greater urgency around measures to get more money flowing into pension savings.”
His comments echo growing concern among pensions experts that the reforms risk prioritising political goals over long-term financial security for workers.
Tom Selby, director at investment firm AJ Bell, told the Telegraph: “Pension schemes should fundamentally be investing to deliver the best possible returns for savers, regardless of where those assets are held.
“There is a real danger in conflating the Government’s increasingly desperate efforts to deliver economic growth with people’s long-term retirement goals that the latter will be sacrificed in pursuit of the former.
“Ministers need to be straight with people about the risks inherent in this approach, rather than denying the uncertainty that exists and claiming this is somehow a guaranteed win-win for savers and the UK economy.”
Ms Reeves, however, has insisted the Bill will unlock “£50 billion” in investment into the UK economy and drive better outcomes for pension holders. She claims the reforms will ensure savers “benefit from the same high returns that richer investors enjoy through access to private markets”.
Under the plan, regulators would gain what is being described as a “back-stop” power to force defined contribution (DC) schemes – which cover most workers in modern pensions – to put more money into British businesses and infrastructure.
Currently, the majority of DC pension savings are held in publicly traded assets such as shares and bonds. Private market exposure is generally limited, due in part to the higher risk and complexity involved.
Mike Ambery, retirement savings director at Standard Life, said he believed the new regulatory powers were unlikely to be used, noting that schemes are already taking voluntary steps under the Mansion House Accord, where 17 major providers pledged to invest at least 5% in UK private assets by 2030.
Critics are also alarmed by another element of the Bill, which will allow firms to access up to £160 billion in surplus funds held in traditional defined benefit (DB) pension schemes – potentially putting future pensions at risk.
Defined benefit schemes, which offer guaranteed retirement incomes based on salary and years of service, are generally well-funded thanks to strong investment returns and higher interest rates. But the Bill would loosen rules around how these surpluses can be used, including giving employers the option to extract them for business use.
Campaigners have warned the move could turn pension schemes into a “piggy bank” for firms and undermine the hard-won protections of millions of workers.
While the Department for Work and Pensions (DWP) has not issued a fresh statement, its own impact report acknowledges that the surplus provision increases “indirect costs to members” and the risk that some schemes may “not pay full benefits”.
Despite the concerns, Ms Reeves has stuck to her position, saying: “This is a game-changer – delivering bigger pension pots for savers and unlocking billions for British growth.”