Pension Schemes Bill – what it means for your retirement

Among the proposed legislation in the 2024 King’s speech is a new Pension Schemes Bill. According to the government, the proposals will help the average earner to get more than £11,000 in their pension pots. It certainly sounds like good news, so in this post we take a closer look at how the changes will work.

Why a new Pension Schemes Bill?

The government says it has a number of reasons for introducing the new Pension Schemes Bill. These include the following:

• While auto enrolment has led to 88% of eligible employees saving into a workplace pension, 4 in 10 working-age people are under-saving for their retirement.
• There is a wide variation of performance between pension providers and pension schemes. Some people rely on their employer to choose a pension scheme, but then face the problem of poor investment performance.
• While pension schemes hold billions of pounds worth of assets and play a major role in supporting the UK economy, they could play a more significant role.
• Many people have multiple pension pots. Often these individuals lose track of one or more of the pension schemes.

Measures announced in the Pension Schemes Bill

The Pension Schemes Bill will contain a variety of new measures. The principal ones are summarised below:

• Stopping people from losing track of their pension pots. Individuals will be able to automatically bring together defined contribution pots in one place. This will help them to improve the returns on their contributions. It will also help pension schemes, which currently have to manage a lot of loss-making pension pots.
• Ensuring people save into schemes that deliver value. Trust based defined contribution schemes will have to show they deliver value through a Value for Money framework. The aim is to make a transition to a smaller number of well-performing and well-governed schemes.
• Requiring pension schemes to offer retirement products. The government wants people to have a pension and not simply a savings pot when they retire. Trustees of occupational pension schemes will need to offer at least one ‘retirement income solution’, including default investment options.
• Consolidating the defined benefit pensions market via commercial ‘superfunds’. This is designed to protect people who have closed legacy defined benefit schemes. It will protect them from losing part of their pension if their employer becomes insolvent.
• Ensuring the Pensions Ombudsman is a ‘competent court’. This will mean pension schemes won’t need to apply to the courts to enforce Ombudsman decisions about the recovery of overpayments.
• Changing ‘end of life’ rules. This will extend the definition of ‘terminal illness’, allowing more people within the Pension Protection Scheme and the Financial Assistance Scheme to access a lump sum payment at an earlier stage.

What else is going to happen to pensions?

In addition to the Pension Schemes Bill, Labour has launched a pensions review. The first stage will focus on investment, particularly ways of increasing defined contributions schemes investment into productive assets. It will also look at the possibility of pooling the £360 billion in the Local Government Pension Scheme to allow investment in a wider range of UK assets. Currently the scheme is split across 87 funds, leading to about £2 billion per year in costs and fees.

The second stage of the review will look at ways of increasing investment in UK markets and assess ‘retirement adequacy’.

Need help with pensions?

The proposed Pension Schemes Bill contains some useful proposals. It will be particularly good for pension savers to be able to consolidate old and lost pensions. However, if you are currently paying into a pension, we recommend talking to a member of the THP team. In some cases, increasing your pension contributions will not only aid your retirement but could help you reduce your income tax bill. Additional contributions can also have positive outcomes with regard to inheritance tax.