Bill to create pension ‘megafunds' and tidy up ‘micro' retirement savings pots
The Pension Schemes Bill will create 'bigger and better pension funds' and combine smaller pension pots, the Government said.
Many people build up several small pensions that can be hard to keep track of as they switch jobs. The Bill will bring together micro pension pots worth £1,000 or less into one pension scheme.
For people approaching retirement, the Bill will require schemes to offer clear default options for turning savings into a retirement income.
There will also be new rules creating multi-employer defined contribution (DC) scheme megafunds of at least £25 billion, using economies of scale to invest in a wider range of assets.
The Government said defined benefit (DB) pension schemes will also have increased flexibility to 'safely' release a surplus worth collectively £160 billion, to support employers' investment plans and benefit scheme members.
Work and Pensions Secretary Liz Kendall said: 'The Bill is about securing better value for savers' pensions and driving long-term investment in British businesses to boost economic growth in our country.'
Chancellor Rachel Reeves described the legislation as 'a game changer'.
Pensions minister Torsten Bell said: 'Pension saving is a long game, but getting this right is urgent so that millions can look forward to a higher income in retirement.'
Sir Steve Webb, a former Liberal Democrat pensions minister who is now a partner at LCP (Lane Clark & Peacock), said: 'Whilst there are many worthy measures in the Bill, the biggest omission is action to get more money flowing into pensions.'
He continued: 'This issue is unfortunately on the back burner. Measures such as consolidating tiny pension pots are helpful tidying up measures, but do nothing to tackle the fundamental problem that millions of us simply do not have enough money set aside for our retirement.
'With every passing year that this issue goes unaddressed, time is running out for people already well through their working life to have the chance for a decent retirement.'
Patrick Heath-Lay, chief executive of People's Partnership, provider of the People's Pension, said: '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.'
Andy Briggs, CEO of Phoenix Group, said: 'The Bill sets a clear direction for the future of pensions with the emphasis on building scale and ensuring savers receive value for money.'
Ian Cornelius, CEO of Nest, said: 'We believe that large, well-governed schemes can drive great outcomes for their members by using their scale and expertise to diversify where money is invested, and gain access to attractive investment opportunities not available to smaller investors at low cost.'
Nausicaa Delfas, chief executive of the Pensions Regulator, said: '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.'
Michelle Ostermann, chief executive of the Pension Protection Fund, said: 'We will support the Government and policymakers as the Bill progresses.'
Rocio Concha, director of policy and advocacy at Which?, said: 'Pensions have become far too complex and fragmented, so it's good to see the Government taking steps to simplify them and ensure schemes provide value for money.
'Which? has campaigned for years for the consolidation of small pots, so we are delighted that this Bill is seeking to do just that – a move that will provide greater value for savers and support them to keep track of their pensions.'
Yvonne Braun, director of policy, long-term savings, at the Association of British Insurers, said: 'This wide-ranging Bill is set to usher in the most large-scale pension reforms since auto-enrolment. The details will be crucial and we will scrutinise the Bill to ensure it puts the interests of savers first.
'We also urgently need to tackle the level of pension contributions which are too low to create an adequate retirement income for many. We urge government to set out the details of its adequacy review as soon as possible.'
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