Rachel Reeves is set to announce a review into significant failings in the pension service as the government promises workers could see a £29,000 retirement boost.
The Pensions Schemes Bill, currently in its second reading, has garnered support from consumer advocates and the pensions sector, promising to benefit 20 million individuals with pension savings. The legislation is designed to consolidate numerous small pension pots, each valued at £1,000 or less, into a single accredited scheme.
Moreover, future pension plans will be required to demonstrate their value for money, aiding savers in assessing the potential returns on their investments. This move aims to protect employees from the pitfalls of consistently underperforming pension schemes.
Pensions Minister Torsten Bell said: “We’re ramping up the pace of pension reform, to ensure that people’s pension savings work 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.”
New rules for ‘bigger and better pension schemes’
The bill also proposes new regulations to pave the way for large-scale ‘megafund’ pension schemes involving multiple employers, with a minimum fund size of £25 billion. The government asserts that these “bigger and better pension” schemes would reduce expenses and enable investment across a broader array of assets.
New measures are being introduced to simplify retirement choices, including default routes to a retirement income for all pension schemes. Defined Benefit pension schemes will also be given increased flexibility, allowing them to safely release a surplus of £160 billion to bolster employer investment plans.
Tackling challenges faced by workers wanting to retire
The government has acknowledged that there are still numerous challenges faced by different workers and groups when it comes to retirement. However, the forthcoming Pensions Review will focus on issues such as pension adequacy to ensure that certain groups of workers do not miss out on the measures introduced in the Pensions Bill.
No date has been set for this review into overhauling the pensions system. It is understood, however, that Chancellor Rachel Reeves will appoint a commission to examine the challenges and shortcomings of the pension system.
Minister for Local Government and English Devolution, Jim McMahon OBE, said: “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.”
Zoe Alexander, Director of Policy and Advocacy for PLSA, said: “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.”