Rachel Reeves to shake up pensions to boost UK investment
The government is set to shake up UK pensions today, with Rachel Reeves planning several government-backed megafunds to boost pension wealth and investment.
In the most significant reform to the pensions system since 2021, the bill will focus on six areas – from giving the government a “reserve” power to force pension schemes to invest in the UK to a new mechanism for merging smaller, defined pots.
Ministers estimate that workers will, on average, be boosted by £1,000.
Trimming away of red tape and business administration is thought to offer up a £225m annual saving for companies.
Work and pensions secretary Liz Kendall has said that the new rules are aimed at “securing better value for savers’ pensions and driving long-term investment in British businesses to boost economic growth in our country”.
These new measures are intended to help consolidate the more than 13m pots containing less than £1,000, many of which cropped up as a result of the Cameron government’s 2012 introduction of auto-enrolment.
Lisa Picardo, chief business officer UK at pensions fintech PensionBee said: “This reform has been a long time coming and should mark the start of a wider shift towards a more modern, joined-up pensions system.”
Elsewhere, rules around “pension freedoms” – introduced by then-Chancellor George Osborne in 2015 to allow early withdrawal of funds – will be adjusted to require defined contribution schemes to lay out clear default options.
The bill is set to put in place a new system to boost transparency around pension scheme performance to make good on plans for a “value for money” framework.
Subscribe to the Boardroom Uncovered podcast from CityAM here.
Pension schemes caught in a bind
In a trail of legislation last month, the Chancellor announced that the government would be setting “binding asset allocation targets” to urge investment into UK infrastructure and businesses.
Reeves faces a delicate balance between intervening to boost pension performance and forcing the hand of UK funds, with Aviva boss Dame Amanda Blanc warning that mandating pension funds to buy British is like “a sledgehammer to crack a nut”.
The announcement follows a CityAM report in May that public trust in pensions had dipped for the first time in five years, according to research by Trafalgar House.
The People’s Pension, the largest commercial master trust in the UK, described the bill as a “pivotal moment”, which will shape a brighter future for both savers and the industry:
“This is a pivotal moment in pension reform. The bill contains many measures that will require providers to deliver better outcomes for savers and improve the workplace pension system. We are encouraged by the introduction of default consolidator schemes, which will be the most effective way to solve the dormant small pots problem.
“We’re also very pleased to see the inclusion of value for money metrics within the bill as it is vital that savers better understand the real value that is offered by different providers,” said Patrick Heath-Lay, chief executive of People’s Partnership, provider of People’s Pension.
Meanwhile, The Pensions Regulator (TPR) described the bill as a “once in a generation” opportunity.
Nausicaa Delfas, chief executive of TPR, said: “The Pension Schemes Bill is a once in a generation opportunity to address unfinished business in the UK pension system.
“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.
“We have long advocated for fewer, larger well-run schemes with the size and skill to deliver better outcomes for savers. As such we are also pleased to see the proposed legislative framework for DB superfunds, providing options and choice in defined benefit consolidation.”