A new pensions bill to strengthen UK pensions and boost the economy has been greeted with enthusiasm by the pensions industry.
The Pension Schemes Bill, unveiled in the King’s Speech on Wednesday, confirmed Labour’s intention to forge ahead with plans to put pensions at the heart of the government’s growth-focused legislative agenda.
Measures in the new Bill include casting the worst performing default funds under the spotlight as part of a value-for-money drive; the consolidation of small pension pots and the requirement for occupational pension schemes to offer retirement income solutions to members.
The announcement was welcomed by the pensions industry.
Tom Selby, director of public policy at AJ Bell, said: “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. 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.”
However, he said the claims that the measures in the Bill could deliver bigger pensions should be taken with a “pinch of salt”, as this will ultimately depend on the performance of investments.
Selby said: “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.”
The government has also made clear that it is intent on pushing forward with greater consolidation of pension schemes, in part to improve the value members receive and in part to deliver greater levels of investment into UK companies.
Experts said that for individuals, there can be benefits to taking control and combining retirement pots, including potentially lower charges, more choice and easier administration.
Simon Kew, head of market engagement at Broadstone, said: “The problem of small pots is likely to take years to solve so it is good to see that there is an urgent desire to fix this issue. While there is mention of commercial superfunds, the public sector consolidator idea is conspicuous by its absence.
“The legislative direction of travel outlined in the King’s Speech is understandable as a smaller number of larger pension schemes brings efficiencies for providers, investment opportunities for the government and easements for regulators. The hope is that the combination of these will lead to better outcomes for members while these goals clearly remain consistent with the terms of any deeper review of financial services and pensions.”
Helen Morrissey, head of retirement analysis at Hargreaves Lansdown, said the new bill heralds “positive news” for pension savers, offering greater simplicity and flexibility.
Morrissey said: “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.”
The Bill also contains measures for the trustees of pension schemes to offer savers retirement products so that they have a pension and not just a savings pot when they stop work.
Kew said: “The challenge of retirement income from Defined Contribution funds is massive and adding some paternalism back into the system seems to be the only way forward.
“The government’s analysis suggests that it will increase pot size at retirement by as much as 9% for the average earner contributing to a pension over the course of their career which will be a major boost for savers. There is a strong focus, as expected, on the productive investment of pension capital but that may be a tougher nut to crack in the short term.”
However, commentators noted that the new bill failed to mention scaling up automatic enrolment. While there is wide agreement that minimum contributions under auto-enrolment will need to rise, there remains a question mark over when changes will be put into place.
“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,” Selby added.
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