What was in the Pensions Bill unveiled in King’s speech?

Labour has announced a Pension Schemes Bill that aims to make retirement investments key to its drive to boost the economy.

The legislation unveiled in today’s King’s Speech confirms the party plans to forge ahead with Tory plans to harness savers’ pension pots to an overall growth strategy.

It also claims this could boost individual pots, but one pension expert advises savers to take this ‘with a pinch of salt’ as it relies on the investment performance of your own fund.

Notable measures include:

– An effort to tackle lost pension pots and the multiplying pots people end up with during their working life;

– Moves to require pension schemes to offer workers ways to turn pension pots into an income when they reach retirement, not just send them off to find their own solutions;

– Tests to ensure pension schemes are up to scratch, invest productively and deliver value.

‘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,’ says Tom Selby, director of public policy at AJ Bell.

‘The claim that the measures in the Bill could deliver bigger pensions needs to be taken with a pinch of salt, as ultimately this will depend on the performance of your investments.

‘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.’

Worst pension investment fund performers on notice to ‘up their game’ 

 ‘Savers rightly expect to receive good value for money from their schemes,’ says Selby.

‘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.’

‘The Government is also intent on pushing forward with greater consolidation of pension schemes, in part to improve the value members receive and in part to help deliver greater levels of investment into UK Plc.’

‘When it comes to turning your pension into a retirement income, the government says it plans to require all occupational pension schemes to offer a retirement income solution to members.

‘While we don’t have detail on exactly what this will mean, there are many occupational schemes that do not offer drawdown to their members, meaning lots of people will need to transfer in order to take a flexible income.

‘One key thing missing from this Bill is any mention of scaling up automatic enrolment. There is wide agreement that minimum contributions under auto-enrolment will need to rise.

‘The legislation for these changes is already in place – but the big question is when will it be put into practice?’

Measures could boost average saver’s pension pot by 9 per cent 

‘Today’s Pensions Bill heralds positive news for people’s pensions, with simplicity and greater flexibility,’ says Helen Morrissey, head of retirement analysis at Hargreaves Lansdown.

‘Government estimates that the introduction of these measures could boost the average person’s pension pot by 9 per cent over the course of their career.

‘There are measures in place aimed at dealing with the lingering “lost pots” problem with deferred pots being automatically brought together in one place.

‘Schemes will also be under pressure to prove they are offering value for money through the introduction of a standardised test.

‘How metrics related to cost, returns, service and member engagement will be crucial here. Value for money should also drive consolidation within the pensions market amounting to a smaller number of much larger defined contribution schemes.’

‘The Bill also includes measures requiring schemes to offer a retirement income solution to members. People are likely to have pots in a variety of schemes.

‘Ensuring that someone has a full sight of their savings and the opportunity to consolidate pots ahead of making retirement choices will be crucial to drive better outcomes.’

Moves to merge the many small pots savers now end up holding 

‘In today’s King’s Speech, the Labour party has included the consolidation of defined contribution small pots in their legislative agenda, addressing a crucial issue in modern retirement saving,’ says Kirsty Anderson, retirement specialist at Quilter.

‘Our working habits have drastically changed over the last few decades. Previously, individuals might have had one or two jobs during their lifetime, resulting in one or two pensions.

‘However, with the rise of auto-enrolment and more frequent job changes, people are now accumulating multiple small pension pots. This unintended consequence can complicate retirement saving and may even cost savers money.’

Anderson says there are three main options being considered for managing small pot consolidation:

– Pot follows member

– Single default consolidator

– Multiple default consolidators.

Focus is returning to ‘a pension being a pension’ – not just a savings product 

‘The new government is clearly identifying the importance of pensions and the outcomes that will be vital for millions of savers,’ says Calum Cooper, head of pensions policy innovation at Hymans Robertson.

‘In its inclusion of measures around both small pots and value for money, it is good to see a continuation of some of the work already done.

‘We are also very encouraged to see that the focus returning to a pension being a pension; not just a savings product.’

Cooper says the bill could lead to sophisticated ‘straight through’ decumulation products to help people navigate from work into retirement safely and successfully.

He adds: ‘It is clear that the government wants pensions, and the National Wealth Fund bill, to play a role in providing meaningful stimulus to UK productivity.

‘For this, the pensions industry will need clarity – both a practical road map and clear and attractive opportunities to invest at scale.

‘There is a huge societal opportunity in unlocking the productive potential of our £2.5trillion of pensions.’

Adding ‘paternalism’ back into pension system seems to be way forward

‘The Pensions Bill was a surprise inclusion in the King’s Speech but largely continues the direction of travel from the previous government in various areas such as the consolidation of small pots and a Value for Money framework,’ says Simon Kew, head of market engagement at Broadstone.

‘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 a mention of commercial superfunds, which have already completed their inaugural deals, the public sector consolidator idea is conspicuous by its absence.

‘The Bill also contains measures for the trustees of pension schemes to offer savers retirement products so they have a pension and not just a savings pot when they stop work which can help drive up engagement.

‘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 per cent 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.’