The King’s Speech today (Wednesday) outlined the Labour’s legislative priorities for the forthcoming year, including various new pension bills.
Sir Keir Starmer, The Prime Minister, stated that these new measures will “take the brakes off Britain” in order to boost economic growth and raise standards of living. Sir Keir told BBC Breakfast before the King’s speech at the State Opening of Parliament that “there is no time to waste.”
Among them is the Pension Schemes Bill, which Labour argues will benefit over 15 million private sector pension savers by improving their outcomes.
Key Points of the Pension Schemes Bill
- Consolidation of Small Pension Pots
It intends to avoid people losing track of their pension savings through consolidating small pots. This initiative is aimed at automatically merging multiple smaller pension locations into a consolidated account in an effort to maximize retirement funds. This would allow employees to move their pensions across jobs, rather than accumulate several small ones throughout their working life.
This echoes the previous Government’s ‘Pot for Life’ scheme, whose aim was ensuring that pensions stuck with workers as they moved from one employer to another. In 2022, it was estimated that lost pension pots were worth £26.6 billion.
- Value for Money Test
The bill also contains the introduction of a standardised examination and a ‘value for money’ framework that pension schemes must go through. The purpose of this test is to make sure that pension schemes are of value and thus have fewer numbers performing below par, while others are well-run and high-performing.
- Retirement Products Requirement
Trustees of occupational pension schemes will be required to offer retirement products in addition to savings options. This includes providing members with “retirement income solutions or a range of solutions” such as default investment options. The government views this as a way of encouraging more funds to be invested for longer.
Additional Reforms
The bill also reasserts the Pensions Ombudsman (TPO) as a competent court, thereby enabling pension schemes to recover overpayments without any application to courts, hence reducing pressure and costs on courts, schemes, and members.
Additionally, the definition of ‘terminal illness’ is expanded so that if terminally ill, they can receive lump sum payments earlier by eligible members within the Pension Protection Fund and the Financial Assistance Scheme. The proposed legislation also looks into consolidating defined benefit (DB) market through commercial Superfund, which increase protection for members of closed legacy DB schemes from the risk of employer insolvency.
According to Government estimates, these actions include setting up a value for money framework, merging small pots together, and availing more ways of retiring. This may increase average earner’s pension pots at retirement by about 9% if they save throughout their careers.
Currently, forty per cent of the working-age individuals are saving less than enough to retire on, beside this there is much difference in performance among different pension providers. This can lead to poor fund selection and suboptimal investment performance when employees rely on their employers to choose pension schemes.
For example, over five years, (without additional contributions), £10,000 in a defined contribution pot could grow to £10,400 in the lowest performing scheme or £15,100 in the highest performing scheme – a 46% difference between the two.
