- Pensions Bill featured in King’s Speech to put millions of people’s pension pots at heart of the government’s growth-focused legislative agenda
- Worst performing default funds set to be cast under the spotlight as part of value-for-money drive
- Occupational pension schemes will be required to offer retirement income solutions to members under the plans
- New government plans to continue with the pension consolidation agenda set in motion by the previous administration
- Questions remain over when automatic enrolment contributions will be increased
Tom Selby, director of public policy at AJ Bell, comments:
“The Pensions Bill will put millions of people’s pension pots at the heart of the new government’s drive to boost investment in the UK and ultimately drive long-term economic growth. The claim that the measures in the Bill could deliver bigger pensions needs to be taken with a pinch of salt, as ultimately this will depend on the performance of your investments. It is, of course, possible that this package of reforms will result in better investment returns for members – but this is never guaranteed. Investing in private equity, in particular, can come with significant costs and risks, so it is crucial trustees choosing to move in this direction are focused on delivering good retirement outcomes above all else.
“Savers rightly expect to receive good value for money from their schemes, so the emphasis on fund performance – in particular the difference between the best and worst performing default funds – effectively puts the worst performers on notice that they need to up their game.
“The government is also intent on pushing forward with greater consolidation of pension schemes, in part to improve the value members receive and in part to help deliver greater levels of investment into UK Plc. For individuals, there can also be benefits to taking control and combining your retirement pots, including potentially lower charges, more choice and easier administration. AJ Bell has a free tool (Find My Pension | How to Find Old & Lost Pensions | AJ Bell) which can help you find and combine your pensions. Reforms not mentioned in the Bill to create Pensions Dashboards in the next few years will make it considerably easier for people to track down lost pensions, and we need the government to get fully behind this initiative to make it a reality. At the last count, there was over £26 billion sitting in pension pots that had become disconnected from their owners*, meaning savers could potentially have thousands of pounds they are completely unaware of.
“When it comes to turning your pension into a retirement income, the government says it plans to require all occupational pension schemes to offer a retirement income solution to members. While we don’t have detail on exactly what this will mean, there are many occupational schemes that do not offer drawdown to their members, meaning lots of people will need to transfer in order to take a flexible income.
“With many of these measures, the development of new guidance options is going to be essential, to provide the superglue binding these together to be able to effectively communicate changes to pension savers. It’s important therefore the FCA and Treasury continue apace with their development of targeted support and reform of the advice guidance boundary.
“One key thing missing from this Bill is any mention of scaling up automatic enrolment. There is wide agreement that minimum contributions under auto-enrolment will need to rise, and a 2017 review recommended removing the lower earnings band and reducing the minimum qualifying age to 18 as a starting point. The legislation for these changes is already in place – but the big question is when will it be put into practice? By removing the lower earnings band, savers will benefit from an extra £500 a year into their pension, which would make a big difference over the course of a person’s lifetime.”
*Lost Pensions 2022: What’s the scale and impact? | Pensions Policy Institute
