New pension changes for 20m people in Pension Schemes Bill
The Government's new Pension Schemes Bill is designed to support working people plan for their retirement by making pensions simpler to understand, easier to manage, and drive better value over the long term.
Keeping track of pensions is notoriously challenging, with the average worker accumulating 11 different pension pots over their lifetime.
This has resulted in £26.6 billion in lost pensions across the UK, according to the Pensions Policy Institute and the Association of British Insurers.
One of its biggest benefits is the merging of small pension pots.
The bill also introduces a new system to show how well pension schemes are performing, this will help savers understand whether their scheme is giving them good value and protect them from getting stuck in underperforming schemes for years on end, to help working people feel more secure about their retirement savings.
For those approaching retirement, the changes will mean clear default options for turning savings into a retirement income. This means people will have clearer, more secure routes to decide how they use their pension money over time.
The full changes are listed in detail here.
Work and Pensions Secretary Liz Kendall says: "Hardworking people across the UK deserve their pensions to work as hard for them as they have worked to save, and our reforms will deliver a huge boost to future generations of pensioners."
Chancellor of the Exchequer Rachel Reeves describes the bill as "a game changer", giving "bigger pension pots for savers and driving £50 billion of investment directly into the UK economy– putting more money into people's pockets."
Government launches plans to automatically combine small pension pots, here's what it's likely to mean for you... https://t.co/GtTdErcABJ — Martin Lewis (@MartinSLewis) April 24, 2025
What do these pension changes mean for workers?
The bill will transform the £2 trillion pensions landscape to ensure savers get good returns for each pound they save, and drive investment into the economy, through a suite of measures, including:
Requiring DC schemes to prove they are value for money, to protect savers from getting stuck in underperforming schemes.
Simplifying retirement choices, with all pension schemes offering default routes to an income in retirement.
Bringing together small pension pots worth £1,000 or less into one pension scheme that is certified as delivering good value to savers, making pension saving less hassle and more rewarding.
New rules creating multi-employer DC scheme 'megafunds' of at least £25 billion, so that bigger and better pension schemes can drive down costs and invest in a wider range of assets.
Consolidating and professionalising the Local Government Pension Scheme (LGPS), with assets held in six pools that can invest in local areas infrastructure, housing and clean energy.
Increased flexibility for Defined Benefit (DB) pension schemes to safely release surplus worth collectively £160 billion, to support employers' investment plans and to benefit scheme members.
What is the difference between a Defined Benefit (DB) scheme and a Defined Contribution (DC) pension?
There are two different ways pension schemes work.
With a Defined Benefit (DB) pension scheme, also referred to as final salary pension schemes, the amount you get is usually based on your salary and how long you've been part of the pension scheme.
For a Defined Contribution (DC) pension, the figure you get is based on how much you and your employer invest in the pension and how your investments perform.
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What's the expert view on the new pension changes?
Nausicaa Delfas, chief executive of The Pensions Regulator (TPR) says: "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."
Andy Briggs, CEO, Phoenix Group says: "The bill sets a clear direction for the future of pensions with the emphasis on building scale and ensuring savers receive value for money.
"People across the country will feel the impact of these changes with plans to consolidate small pots, ensure the dashboard delivers and provide default retirement income options at the point of retirement.
Patrick Heath-Lay, Chief Executive, People's Partnership adds: "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."
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