Industry experts have welcomed new measures announced in the King's speech on Wednesday, aimed at helping individuals increase their pension savings. However, they note that further efforts are required.
The Pensions Scheme Bill intends to enhance retirement income for over 15 million private sector pension savers, ensuring they benefit more from their pension assets.
UK Pension Scheme Bill Aims to Enhance Retirement Income and Financial Security
The Pensions Scheme Bill seeks to encourage promote pension consolidation and emphasizes value and outcomes for scheme members. The legislation is part of broader efforts to boost economic growth with the hope that it will enable pension schemes to invest in a more diverse range of assets, consequently driving growth.
Measures also aim to help people keep track of their pension pots by automatically merging small pots. This approach could also help pension schemes, that have been managing some unprofitable pots.
A standardised assessment will also be implemented as a requirement for trust-based defined contribution (DC) schemes to show that they are providing value. This should result in a reduced number of well-managed schemes and enhance savers' outcomes.
The Financial Conduct Authority (FCA) will keep a close eye on the consistent application of the framework. Additionally, pension schemes will need to provide retirement products, ensuring that individuals have a pension rather than a savings pot when they retire.
Trustees of occupational pension schemes will need to provide retirement income solutions or a variety of alternatives, which include standard investment opportunities, to members.
The Government Hinges on Pension Reforms to Enhance Retirement Savings
The UK Government anticipates that will result in more funds being invested for extended periods, thus enhancing the potential for investments in valuable assets.
The Bill will also affect the consolidation of defined benefit (DB) schemes through “super funds”, protecting closed legacy DB schemes' members against the risk of losing some of their pension if their employer goes bankrupt.
Helen Morrissey, head of retirement analysis at Hargreaves Lansdown (HL), stated the Bill “heralds positive news for people’s pensions, with simplicity and greater flexibility”.
She went on to say: “Government estimates that the introduction of these measures could boost the average person’s pension pot by 9 per cent over the course of their career. With recent data from HL’s Savings and Resilience Barometer showing only 38 per cent of households are on track for a moderate retirement such changes are vital.
“There are measures in place aimed at dealing with the lingering ‘lost pots’ problem with deferred pots being automatically brought together in one place. Keeping track of every pension can mean people enter retirement with a better view of exactly how much they have and this can significantly improve retirement decision making.
“Ensuring we can build on the small pots plan and use the infrastructure to support a Lifetime Pension will be essential to stop the flow of small pots and allow for people who change jobs frequently to take control of their retirement planning. Allowing people to choose their pension provider will also have benefits for engagement and improve market competition based on which schemes support people and their retirements the best.”
Sir Steve Webb, a former pensions minister, said: “Perhaps inevitably, it will take time before we see how the new Government’s agenda differs from that of its predecessor.
“But this does mean that any distinctive policies will have to await legislation later in this Parliament and may take time to have effect.”