The government has introduced its “game-changing” Pension Schemes Bill, which sets out the legislative framework for a raft of reforms, including DC multi-employer ‘megafunds’, the new Value for Money framework, small pension pots consolidation, default retirement options and rules that will allow employers to access DB surplus funds.
This move has been broadly welcomed by the industry, who said there were few surprises – with many of these measures having been trailed and consulted on for a number of years. However pension experts called for a timeline of implementation of the various measures, with details of some of these reforms still needing to be hammered out.
Announcing the details of the Bill the government said these various measures will benefit 20m workers and transform the £2 trillion pensions landscape, while supporting the government’s growth agenda. It added tis will create a more efficient and resilient pension landscape.
By encouraging greater consolidation in the DC market, merging small pots, and putting in place plans to reform the Local Government Pensions Schemes, the government hopes to drive far greater pension fund investment directly into the UK economy, as set out by the voluntary Mansion House Accord.
The Bill also introduces the new value for money framework, designed to stop savers being stuck in underperforming funds. This could also see larger DC schemes closed to new entrants if they fail to deliver on key metrics for members. This will be accompanied by legislation that will enable schemes to make bulk transfers from older defaults into these ‘go-to’ mega-funds, without seeking each individual member’s consent.
Announcing the bill Chancellor Rachel Reeves says: “The Bill is a game changer, delivering bigger pension pots for savers and driving £50 billion of investment directly into the UK economy– putting more money into people’s pockets through the Plan for Change.”
Minister for pensions Torsten Bell adds: We are ramping up the pace of pensions reform. Workers deserve to get better bang for each buck saved, and these sweeping reforms will make sure they do.
“Pension saving is a long game, but getting this right is urgent so that millions can look forward to a higher income in retirement.”
Royal London policy director Jamie Jenkins says: “The Pension Schemes Bill brings together several initiatives aimed at improving the pensions landscape for savers. While there are still many details to work through, this hopefully marks the start of a long-term strategic plan for pensions.”
Phoenix Group CEO Andy Briggs adds: “The Bill sets a clear direction for the future of pensions with the emphasis on building scale and ensuring savers receive value for money. People across the country will feel the impact of these changes with plans to consolidate small pots, ensure the dashboard delivers and provide default retirement income options at the point of retirement.
“Individually these initiatives would be significant but in combination they have the potential make a significant difference to people’s retirement across the UK and we look forward to working through the detail with government and other stakeholders.”
Given the raft of different measures included some providers called for greater clarity on the introduction of these measures. Aegon’s pensions director Steven Cameron says: “There’s a huge amount to be welcomed in this blockbuster of a Pension Schemes Bill. After months, and in some cases years of debate and consultation, the Bill paves the way for a brave new world of workplace pensions.”
He adds that the government is rightly highlighting the benefits scheme consolidation and a new approach to pension scheme investments can bring to the UK economy. “But the real litmus test must be to make sure the changes deliver tangible benefits for the millions of individuals saving for retirement.
“Savers will have the assurance that workplace pensions are consistently offering value for money, with a strong focus on good investment returns. They’ll be able to access pension dashboards to see all their pensions in one place, while having small pots (under £1000) they’ve left behind when changing jobs brought together.”
He adds: “The ambition for all schemes to offer their members clear default retirement options will be helpful for some, but mustn’t discourage individuals from engaging fully to make the best decisions for their own personal retirement.
“There’s a huge amount of change here, with many inter-connections, which will require several years of careful planning and implementation. The Government has promised to set out its intended timeline, which will be key in helping both providers and scheme members plan ahead.”
Nest CEO Ian Cornelius adds: “We believe that large, well-governed schemes can drive great outcomes for their members by using their scale and expertise to diversify where money is invested, and gain access to attractive investment opportunities not available to smaller investors at low cost.”
The Pension Regulator chief executive Nausicaa Delfas described this as a “once in a generation opportunity” to address unfinished business in the UK pension system.
She adds: “Making sure all schemes are focused on delivering value for money, helping to stop small, and often forgotten pension pots forming, and guiding savers towards the right retirement products for them, will mean savers benefit from a system fit for the future.”
