Pension Schemes Bill promises ‘value for money’ for pension savers
The new Pension Schemes Bill, announced by King Charles, aims to reshape the UK's private pensions market by encouraging pension consolidation and prioritising member value and outcomes. For example, to ensure defined contribution (DC) pension schemes deliver value for members, a standardised test will be introduced with schemes expected to demonstrate their value. The Financial Conduct Authority (FCA) will ensure the framework is applied to contract based schemes, ensuring the framework is applied consistently across the whole pensions market.
The Government estimates pension consolidation and guided retirement products measures may lead to around 9% higher pension pots at retirement. That’s an uplift of £11,000 for an average earner over their career. To enhance pension protections for members of closed legacy defined benefit (DB) schemes, the Bill promotes consolidation through commercial superfunds.
Recognising that pensions should provide retirement income, not just savings, the Bill places new duties on trustees of occupational pension schemes. They will be required to offer retirement income solutions or a range of options, including default investment choices. The Government also pointed out that the wide variation of performance across pension providers, where individuals who rely on their employer’s choice of pension scheme suffer from poor returns on their investment, will only get worse if not tackled.
The Bill also plans to streamline the pensions appeals process by granting the Pensions Ombudsman the authority of a competent court. This will mean pension schemes no longer need to seek court approval to enforce overpayment recovery decisions.
Lastly, the Bill aims to provide greater financial support for terminally ill members by extending the definition of ‘terminal illness’ and ensuring eligible members within the Pension Protection Fund and the Financial Assistance Scheme can receive a lump sum payment at an earlier stage.
Pensions Review will focus on improved pension outcomes and UK growth
The newly announced Pensions Review upholds the Labour Manifesto’s commitment to enacting a thorough evaluation of the UK pensions framework. The Review, which will be led by Pensions Minister Emma Reynolds, will be conducted in two stages. The first will focus on ‘productive investment’ and ‘broader investment strategies,’ ensuring funds are allocated to areas of the market that yield higher returns.
The second stage of the Review, which is scheduled to begin later in the year, will look at ways to improve pension outcomes by maximising returns and fostering increased investment in UK markets, thereby boosting the UK economy.
The Government believes DC pension schemes will manage more than £800bn in assets by the end of the decade. It wants to channel those assets into the UK economy, helping to ignite growth and infrastructure development. Rachel Reeves said, “The Review we are announcing is the latest in a big bang of reforms to unlock growth, boost investment and deliver savings for pensioners. There is no time to waste.”
Industry responses
The new administration was praised for its swift introduction of the Pensions Schemes Bill. Nigel Peaple, Director of Policy and Advocacy at the Pensions and Lifetime Savings Association (PLSA), said, “No time has been wasted in bringing forward existing regulatory initiatives that already have the backing of industry and will improve the retirement outcomes of savers.”
Duncan Watson, CEO EQ Retirement Solutions commented, “It is very positive to see a number of industry and Government initiatives pulled together, with the aim to make the industry work better for everyone”.
Commenting on the Pension Review, Barry O’Dwyer, Chief Executive of Royal London Group, said, “Pensions already play an important role in supporting UK economic growth, and the Review announced by the Chancellor is a welcome opportunity to consider reforms that could strengthen this further.”
He added, “We are particularly pleased the Review will focus on delivering better retirement outcomes for people, as this must always be the main priority of the pensions system.”
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