More than 15 million British workers who save into workplace pension schemes might see their retirement savings increase by £11,000 due to a package of reforms outlined by the new Labour Government.
Announced in the King’s Speech, these measures aim to consolidate savers’ small pension pots to encourage easier management and better investment performance.
Most UK workplace pensions are defined contribution (DC) schemes, where retirement income depends on investment performance and withdrawal choices. The new pensions bill will introduce several changes that could significantly enhance the average retiree’s savings.
A key reform is the introduction of a ‘value for money’ test for pension providers. This aims to reduce the number of underperforming schemes, ensuring savers benefit from better-governed and more productive investment options.
By consolidating small pension pots accumulated by workers who switch jobs, the reforms also seek to improve investment tracking and performance, while reducing the administrative burden on pension schemes.
Additionally, pension schemes will be required to offer retirement products that provide a steady income, rather than just a lump sum. This change is expected to improve retirement outcomes and promote longer-term investment, potentially boosting economic growth.
Notably, however, the reforms do not alter the contribution rates for workers auto-enrolled in workplace pensions.
Source: Osborne, Hilary. The Guardian. July 2024. https://www.theguardian.com/politics/article/2024/jul/17/pension-scheme-shake-up-may-add-11000-to-retiree-savings.