The government has recently unveiled its Pension Schemes Bill, which has been designed to make pension management and retirement planning easier for around 20 million UK workers.
Their aim is to make it easier to combine smaller pension pots and create bigger pension funds, with an overarching goal of simplifying pensions and promoting economic growth through reinvestment.
The bill will also increase transparency from pension providers, so savers can see whether they’re getting good value for money.
Read on to find out more about the upcoming reforms and what they could mean for your pension and investments.
Auto-enrolment has led to a greater number of small pension pots which could be consolidated
Auto-enrolment has broadly been a huge success, benefiting millions of UK workers. But, if you’ve changed jobs frequently, it could mean you have amassed several small pension pots. These can be difficult to keep track of or even forgotten.
According to MoneyWeek there are an estimated 13 million workplace pensions with less than £1,000 in them. Under the reforms, these will automatically be consolidated into one larger pension fund that is deemed as delivering good value.
This should make managing and tracking your smaller pensions much easier, at the same time as bringing financial benefits.
Defined contribution (DC) schemes, currently worth £800 billion and covering public and private sector pensions, will be consolidated under the new plans.
The government also plans to bring in new rules to create multi-employer “megafunds”, requiring DC schemes to have at least £25 billion in assets in their main default arrangement by 2030 (or be on track to achieve this by 2035).
If you want to choose your own scheme, you’ll still be able to, and consolidate your small plans into a larger one you choose.
Defined benefit (DB) pensions will also see changes.
The BBC explains there are 86 local authority pension schemes supporting over 6 million people in retirement, the majority being low-paid women. There is £392 billion in these DB schemes, which under the reforms will be merged into six asset pools by March 2026. These asset pools can then invest in local infrastructure, housing and clean energy projects.
Transparency of scheme performance to demonstrate value for money to savers
Pension scheme performance also comes under the spotlight. The aim is to clearly show savers whether they’re receiving good value for money, or if their scheme is frequently underperforming.
Pension schemes will need to demonstrate the value for money their members are receiving. If the schemes fall below a required standard, trustees will be expected to take action.
The new value-for-money framework will allow investors to compare schemes against their counterparts.
Under the new system, it will also be much easier to get a complete overview of your retirement income. The government is planning to introduce “pensions dashboards” to give you a full and visible picture of your workplace pensions and State Pension in one place. This will give you a clear idea of your retirement income at a glance.
Default income options are to become mandatory, with the chance to opt out
If you’re approaching retirement, your pension scheme will soon be required to offer a clear, default option to turn your savings into an income.
Again, if you want to choose a different route, you’ll be able to opt out of the default path.
Reducing restrictions on the Pension Protection Fund
Some changes will also be made to the Pension Protection Fund (PPF). These include:
- Removing the restrictions currently in place which prevent it from reducing the annual pension protection levy it collects, when it is not required
- Extending the definition of “terminal illness” to enable eligible members to collect payments at an earlier stage in their illness.
Get in touch
Fingerprint Financial Planning are pension experts with decades of combined experience in the field. We’ll be keeping an eye on changing rules, so you don’t have to. There’s nothing you need to do right now, and you can rest assured your plans are in safe hands.
In the meantime, if you’d like to understand more about the Pension Schemes Bill or talk to us about any aspect of financial planning, please get in touch by emailing hello@fingerprintfp.co.uk or calling 03452 100 100.
Please note
This article is for general information only and does not constitute advice. The information is aimed at retail clients only. All information is correct at the time of writing and is subject to change in the future.
A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future performance. The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates, and tax legislation may change in subsequent Finance Acts.
Workplace pensions are regulated by The Pension Regulator.