There was a surprise in last week’s King’s Speech with the unveiling of a Pensions Bill aimed at developing a leaner, more efficient system that delivers better retirement outcomes for people. This was followed by announcements by the chancellor Rachel Reeves over the weekend of an urgent review bringing together the pensions industry and government to thrash out how this might work.
The latest data from Hargreaves Lansdown’s Savings and Resilience Barometer showed only 38% of households are on track for a moderate income in retirement, so this is change that is sorely needed.
Government estimates that these reforms could boost the average person’s pension pot by 9% over the course of their career will be music to people’s ears.
What’s included?
One key measure aims to deal with the problem of lost pension pots.
As we move jobs, we can lose touch with old workplaces and the pensions we’ve built up there. This means we can approach retirement with less than what we are entitled to. The Pensions Policy Institute estimates there’s around £26bn of lost pension money in the system that needs to be reunited with the owners.
Read more: How to get the most from an annuity in retirement
Building a system whereby deferred pension pots are brought together in one place will really help people keep track of what they have and help them make better retirement decisions.
Financial services company Hargreaves Lansdown is calling for the measures to go further with the introduction of the Lifetime Pension. This would enable people to specify which pension provider they want their contributions paid into, so they keep one pension throughout their career.
This could boost engagement and help people take control of their retirement planning as well as improve market competition as providers compete for business.
Pension scheme quality is also a real priority, with schemes under pressure to prove they are offering value for money through the introduction of a standardised test. This won’t just measure cost but also areas like service, engagement and investment returns.
It is expected that these measures will drive consolidation in the system amounting to a smaller number of much larger defined contribution schemes. With this scale comes the ability to drive down costs and bring other efficiencies that should drive people’s confidence that they are getting the most they can from the system.
Read more: What to know about workers’ rights and pension bills after the King’s speech
Investing in the UK
Boosting pension scheme investment in UK companies is a major government goal as it believes it will not only boost people’s pensions but also the UK economy.
Many billions of pounds of pension fund money could go into funding infrastructure projects as well as UK businesses.
In recent years pension funds have not really invested in the UK market and the chancellor is hoping these reforms will stimulate people’s retirement pots as well as the economy though it’s fair to say no level of investment return can ever be guaranteed.
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