The Pension Schemes Bill will be “hugely beneficial” for savers

The Government has introduced the Pension Schemes Bill which is intended to make pensions simpler to understand and better managed over the long-term.

The bill will ensure that savers receive good returns on their investments and encourage economic investment. It will do this by requiring all defined contribution (DC), schemes to demonstrate value for money in order to avoid schemes with poor performance, by simplifying retirement options by offering default routes to retirement income and by consolidating and professionalising Local Government Pension Schemes (LGPS), where assets are held in six pools and invested in local infrastructure, housing, and clean energy.

The scheme will also combine small pension pots, worth less than PS1,000, into a single scheme that is certified to deliver good value. It will create new rules for DC megafunds, which are multi-employer schemes with a minimum of PS25 billion.

Liz Kendall, the work and pensions minister, said that hardworking people in Britain deserve to have their pensions work as hard as they worked to save. Our reforms will give a big boost to future pensioners. The bill aims to improve the value of pensions for savers, and encourage long-term investments in British companies in order to boost economic growth.

Matthew Arends is partner and head UK retirement policy for Aon. He added that the Pension Schemes Bill had been a long-awaited bill and that many of its measures were already in place. These included allowing DB plans to access surplus before winding up, creating DC megafunds and introducing the Value for Money Framework to DC pensions.

“One of most interesting measures is the introduction default pension benefit options, which means DC default decumulation. The concept of defaults in DC pensions is extended from joining through auto-enrolment to accumulation via default funds, and retirement via the new defined benefit solution. We are witnessing the maturation of the DC market with the consolidation of DC pots under PS1,000, and the creation megafunds.

Pete Glancy, Scottish Widows’ head of pensions policies, stated: “The average pensioner is expected to have 11 pots when they retire, but some people will have dozens. The initiative will automatically tidy up even the smallest of pension pots, which is a huge benefit for all pension savers. This initiative will complement pension dashboards. As people become more aware of the multiple pension pots they have through a dashboard, it is likely that they will consolidate their pots, big and small, to whichever scheme or product offers the best performance.

Forgotten pension pots

Nausicaa Defas is the chief executive officer of The Pensions Regulator. She said: “The Pension Schemes Bill represents a once in a generation opportunity to finish unfinished business within the UK pension system.” Savings will benefit from a future-proofed system if all schemes are geared towards delivering value for their money. They can also help to prevent small and forgotten pension pots from forming.

Paula Llewellyn CEO of DC & Workplace Savings said that the Bill is a “significant move towards improving outcomes for saving”. The issue of pension adequacy has become a major concern, especially in light of the ongoing cost-of-living pressures. Therefore, increasing engagement and simplifying choices for pensions is essential.

Consolidating forgotten small pension pots could make retirement savings more manageable. Integration into the Pensions Dashboard would make it even easier to see your financial situation.

We also support the move by the government to make sure that all retirees have access the full range retirement income solutions.

“But in order to truly address the issue of adequacy, we need to encourage people to save more money and to start saving earlier.” I look forward to working with the second phase in the pension review to support the measures that will allow more people to enjoy the retirement they desire.

Ministers are warned

The newly formed Pension Security Alliance , which is made up of insurers such as Just Group, Pension Insurance Corporation, and consultant John Ralfe as well as pensioner organisations, claimed that some of the Bill’s provisions could make pension schemes “piggybanks for others to dip in”.

It said in a statement: “Extraction of funds before member benefits are secured can lead to schemes being short of cash if the financial situation changes. Then, certain schemes may collapse.

Adam McCulloch Additional Reporting

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