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Yahoo
29-05-2025
- Business
- Yahoo
What Rachel Reeves' pensions revamp means for your retirement pot - and will you really see £6,000 more?
Government proposals over changes to how pensions are run were released on Thursday, with headlines around £6,000 boosts to workers and £25bn megafunds painting a positive picture for the future. Chancellor Rachel Reeves said the 'reforms mean better returns for workers' and pointed out extra investment for businesses in the UK could push economic growth. But it's all rather abstract for workers - especially on the back of a recent study looking at whether pension contributions were subject to tax - who might simply want to know: what's happening to my pension now? Currently, many pension providers are in operation across the UK, large and small. The plan is to combine many of them into 'megafunds', with your employer-defined contribution (DC) pensions - those are workplace pensions you automatically pay into from your salary, before tax - being pooled with others to create giant funds worth at least £25bn. Local government pension schemes will be consolidated too, from 86 authorities down to six groups. The plan is for this to happen over the next five years, with any funds which don't achieve that figure being given extra time if they can provide the pathway for how they'll get there. Industry body the Society of Pension Professionals has given its approval to the scheme, as have many of the UK's largest existing pensions companies, with deputy prime minister Angela Rayner saying the money in these pension pools will drive 'growth and opportunities in communities across the country for years to come'. 'The Pension Schemes Bill hopes to achieve this revolution through a combination of consolidation of workplace schemes in the private sector and across local authority schemes into 'megafunds', with voluntary agreements by those schemes to boost their allocation to UK-based investments, with a significant emphasis on private equity and 'productive' assets,' pensions expert Alice Guy told The Independent. 'The UK pension system is incredibly fragmented with thousands of small schemes, which adds complexity and costs for pension providers. 'Having fewer, bigger schemes should make it easier for regulators to keep an eye on performance and underlying fees,' Ms Guy added. 'Practically speaking, most of this will happen behind the scenes - your money is protected and ringfenced. Most pension schemes are broadly similar, so there won't be much obvious impact on pension savers.' Pooling pension money into megafunds is likely to mean that your pension provider may change or merge with others, but this could yet be years down the line. So, this six grand benefit. The government report cited the example of an average pension pot, with its value under current conditions and then adding in changes through lowered fees and costs and an expected two per cent uplift from the benefits of new investment options. As a result of those changes, they estimate a £5,900 positive change to the average pension pot. Ms Guy explained: 'The estimated £5,900 saving is based on providers passing on cost savings to pension savers. An average 22-year-old earner is expected to save £2,500 on pension fees over their working life and enjoy a £3,300 investment boost due to better investment performance. Ministers hope that bigger funds will have more resources to invest in a wider range of assets, including private equity.' So, you're not exactly going to see an extra chunk of cash in your bank account, or indeed appear in your pension fund. But that's the expected benefit per person after the reforms. This is a many-year approach, of course, and actual pension value will depend not just on how much you earn and the fees you pay, but also on the market value of those investments at the time of your retirement. Tom Selby, director of public policy at AJ Bell, points out a few notes to be aware of, including no guarantee of any long-term benefit at all. Most of all, for some there will be the danger of chasing government policy plans over investor benefit. 'Many of the claims about the benefits of these reforms to pension savers and retirees need to be taken with a fistful of salt,' Mr Selby said. 'While there may be some efficiency benefits to consolidation, these are difficult to quantify with certainty and reducing competition in the market may stifle incentives to deliver innovation. 'In addition, private equity investing is notoriously high cost and high risk, meaning it is entirely possible people will end up worse off if those investments fail to perform over the long term. 'There is a clear danger that conflating government policy goals – namely driving higher levels of investment in the UK and ultimately economic growth – with those of savers and retirees means the latter will be risked in pursuit of the former. 'It is vital the needs of pension scheme members remain the priority, rather than the needs of a government focused primarily on its growth agenda and ultimately to bolster its chances of re-election.'
The Independent
29-05-2025
- Business
- The Independent
What Rachel Reeves' pensions revamp means for your retirement pot - and will you really see £6,000 more?
Government proposals over changes to how pensions are run were released on Thursday, with headlines around £6,000 boosts to workers and £25bn megafunds painting a positive picture for the future. Chancellor Rachel Reeves said the 'reforms mean better returns for workers' and pointed out extra investment for businesses in the UK could push economic growth. But it's all rather abstract for workers - especially on the back of a recent study looking at whether pension contributions were subject to tax - who might simply want to know: what's happening to my pension now? What's happening and what may change? Currently, many pension providers are in operation across the UK, large and small. The plan is to combine many of them into 'megafunds', with your employer-defined contribution (DC) pensions - those are workplace pensions you automatically pay into from your salary, before tax - being pooled with others to create giant funds worth at least £25bn. Local government pension schemes will be consolidated too, from 86 authorities down to six groups. The plan is for this to happen over the next five years, with any funds which don't achieve that figure being given extra time if they can provide the pathway for how they'll get there. Industry body the Society of Pension Professionals has given its approval to the scheme, as have many of the UK's largest existing pensions companies, with deputy prime minister Angela Rayner saying the money in these pension pools will drive 'growth and opportunities in communities across the country for years to come'. 'The Pension Schemes Bill hopes to achieve this revolution through a combination of consolidation of workplace schemes in the private sector and across local authority schemes into 'megafunds', with voluntary agreements by those schemes to boost their allocation to UK-based investments, with a significant emphasis on private equity and 'productive' assets,' pensions expert Alice Guy told The Independent. 'The UK pension system is incredibly fragmented with thousands of small schemes, which adds complexity and costs for pension providers. 'Having fewer, bigger schemes should make it easier for regulators to keep an eye on performance and underlying fees,' Ms Guy added. 'Practically speaking, most of this will happen behind the scenes - your money is protected and ringfenced. Most pension schemes are broadly similar, so there won't be much obvious impact on pension savers.' Pooling pension money into megafunds is likely to mean that your pension provider may change or merge with others, but this could yet be years down the line. £6,000 each? Sort of So, this six grand benefit. The government report cited the example of an average pension pot, with its value under current conditions and then adding in changes through lowered fees and costs and an expected two per cent uplift from the benefits of new investment options. As a result of those changes, they estimate a £5,900 positive change to the average pension pot. Ms Guy explained: 'The estimated £5,900 saving is based on providers passing on cost savings to pension savers. An average 22-year-old earner is expected to save £2,500 on pension fees over their working life and enjoy a £3,300 investment boost due to better investment performance. Ministers hope that bigger funds will have more resources to invest in a wider range of assets, including private equity.' So, you're not exactly going to see an extra chunk of cash in your bank account, or indeed appear in your pension fund. But that's the expected benefit per person after the reforms. This is a many-year approach, of course, and actual pension value will depend not just on how much you earn and the fees you pay, but also on the market value of those investments at the time of your retirement. Reason for caution Tom Selby, director of public policy at AJ Bell, points out a few notes to be aware of, including no guarantee of any long-term benefit at all. Most of all, for some there will be the danger of chasing government policy plans over investor benefit. 'Many of the claims about the benefits of these reforms to pension savers and retirees need to be taken with a fistful of salt,' Mr Selby said. 'While there may be some efficiency benefits to consolidation, these are difficult to quantify with certainty and reducing competition in the market may stifle incentives to deliver innovation. 'In addition, private equity investing is notoriously high cost and high risk, meaning it is entirely possible people will end up worse off if those investments fail to perform over the long term. 'There is a clear danger that conflating government policy goals – namely driving higher levels of investment in the UK and ultimately economic growth – with those of savers and retirees means the latter will be risked in pursuit of the former. 'It is vital the needs of pension scheme members remain the priority, rather than the needs of a government focused primarily on its growth agenda and ultimately to bolster its chances of re-election.'
Finextra
22-05-2025
- Business
- Finextra
The quiet revolution of AI in pensions
0 This content is contributed or sourced from third parties but has been subject to Finextra editorial review. A quiet revolution is happening in the pensions industry, as it starts to embrace the use of artificial intelligence (AI) for more than number crunching. AI has been used in pensions for several decades, but this has largely been for back office work, such as analysing large data sets associated with pension schemes, which have thousands of members and billions of pounds of assets. Opportunities and concerns The advent of generative AI brings greater opportunities. Pension scheme members are using AI in their daily lives and the industry needs to keep pace. Both major industry regulators - The Financial Conduct Authority (FCA) and The Pensions Regulator (TPR) - are supportive of pension scheme initiatives involving the use of AI. The regulators also employ AI in their own work. TPR recently reported that 'a coalition of fraud fighters' had used AI to help build a new tool to detect pension scam websites, which would have had the potential to reach thousands of pensions members, putting their retirement savings at risk. However, the pensions industry needs to overcome some concerns before AI is more widely adopted in its interfaces with scheme members. The Treasury Select Committee recently issued a call for evidence on 'The use of AI in banking, pensions and other financial services'. To inform its response to this call for evidence, the Society of Pension Professionals (SPP) used their 2025 AI survey of its members, which had assessed the current use of AI in the pensions industry, how this is expected to change in the future and to identify any barriers to more widespread adoption. 87% of pensions professionals who responded to the SPP's 2025 AI Survey said that their firm uses AI, but 75% said that this is currently limited to only 1-5% of their services. It was widely acknowledged that AI saves time and reduces cost, but organisational nervousness was identified as the biggest barrier to firms adopting more widespread rollout. According to the SPP survey, within the next 10 years, the use of AI in the pensions sector is expected to increase significantly, with 18% of respondents expecting it to be used in more than 50% of their services. This implies some optimism that operational nervousness will lessen with the passage of time. The member engagement conundrum The use of AI to aid member understanding and engagement, particularly in the years leading up to retirement, is a hot topic at present. Some background information might be useful to understand why member engagement is a problem. More than 11 million UK workers have been automatically enrolled into a pension scheme since new employer duties were introduced in 2012. Automatic enrolment relies on member inertia (i.e. members have to take action if they wish to opt out of a pension scheme, and if they do, they are automatically re-enrolled three years later). Essentially, it is easier for the UK workforce to be in a pension scheme, rather than not to be in a pension scheme. Most of these automatically enrolled members are in Defined Contribution (DC) schemes, where the employer contributes a fixed percentage of payroll but the members bear the risks of assessing whether their contribution levels and investment choices will support the level of income they need in retirement. At the point of retirement, there are difficult choices to make. For example, members need to make decisions around if and when to purchase an annuity, whether to take drawdown income, or whether to take the whole pension pot as a lump sum (with 25% being tax free). These decumulation choices are complicated, but most members do not take financial advice. The FCA has issued proposals to provide more targeted support for scheme members, citing a survey in which '75% [of scheme members] did not have a clear plan for how to take their money out of their pension or didn't know they had to make a choice.' Further provisions will be included in this year's Pension Schemes Bill requiring trustees to provide decumulation pathways, but it is likely to be a few years before these new duties are fully in force. How is AI helping? There is a lot of potential for using AI in helping to guide DC members through various stages of their pensions journey. These include personalised communications or video clips to prompt members to consider if they are saving enough – this could be powerful if targeted at key birthdays, for example, or to coincide with an annual pay review. Greater technology is also being deployed to guide members through decumulation processes. The pensions industry is making technological strides in member support - particularly Master Trust Schemes and Pension Providers. This is acknowledged in a recent report by the Pensions Policy Institute (sponsored by TPR), which acknowledges a number of 'personalised, engaging, and practical' platforms that have developed to help individuals to understand and plan for their retirement. These include interactive tools and video content. But, as the report concludes, 'Considerations around regulation and consumer protection will be crucial in ensuring these tools serve savers' best interests, striking the right balance between accessibility, reliability and safeguarding against risks.' Looking to the future Regulatory clarity, particularly the work currently being undertaken by the FCA around targeted support, will hopefully provide greater certainty for the industry and reduce nervousness that new technology may stray unwittingly into regulated areas. This in turn should lead to greater confidence in investing further in AI based pensions technology. Pension scheme trustees need to additionally consider how any technological developments sit with their fiduciary duties. They need to make sure that advancements are in the best interests of scheme members, that the pace of change is appropriate for different demographics and that any AI used by third party service providers is subject to good oversight to minimise errors. Trustees should ensure that they have robust, GDPR compliant agreements in place with service providers using AI, and need to consider, for example, whether data protection impact assessments are required and whether privacy notices need to be updated. However, it is unclear if the general public are ready to trust AI to assist with important financial decisions. Generation X joined the workforce when desktop computers were a novelty and when the main form of external communication was a telephone conversation. Are they ready to now allow AI to help them with their retirement choices?
Business Mayor
08-05-2025
- Business
- Business Mayor
Alert to savers with defined contribution schemes over Donald Trump tariffs
Savers are facing a pensions nightmare triggered by Donald Trump's trade war, with experts warning tens of thousands may have to postpone retirement — or even head back to work. A leading pensions body has issued a stark warning that pots built up over decades could shrink by as much as 20%, wiping tens of thousands of pounds from retirement savings. The alert follows the former US president's decision to slap swingeing new tariffs on imports from almost every country, triggering turmoil on global stock markets and a spike in borrowing costs. The Society of Pension Professionals (SPP), which counts household names like Aviva and Legal & General among its members, said those in so-called defined contribution (DC) schemes — where savings rise and fall with the markets — were taking the biggest hit. In a report issued this week, the SPP warned: 'Given the scale of the equity market falls since early April 2025, and the fall in government bond yields, it is possible that some DC savers may see a reduction in potential retirement income of up to 20%.' The group added: 'Given the speed and volatility of such moves, those individuals may decide to delay taking their pension where possible.' Some already in retirement may be forced to rejoin the workforce, it said, in a bid to make up for shortfalls caused by falling investment returns. 'They will face a difficult decision,' the SPP warned, as many retirees rely on regularly selling parts of their investments to cover day-to-day costs. The alarm bells were triggered after Mr Trump's so-called Liberation Day on April 2, when he unveiled a raft of protectionist measures — including tariffs of more than 100 per cent on Chinese imports — sending financial markets into a tailspin. In the week that followed, the S&P 500 — America's leading stock index — slumped by more than 12%, before staging a partial recovery as the White House softened its stance. Borrowing costs also jumped in both the US and the UK, piling more pressure on pensions and investments. Surging bond yields in America were reportedly a key factor behind Mr Trump's decision to delay implementing the tariffs for 90 days. While more than 30 million Britons are enrolled in a workplace pension, most will be shielded from the worst of the turmoil, as savings are usually shifted into safer assets like bonds or cash as retirement approaches. However, tens of thousands with a heavy weighting in shares and riskier investments could face serious losses — especially those close to cashing in. Simon Daniel, of the SPP, said: 'The world is again enduring a period of financial turbulence and this has naturally created some uncertainty for UK savers and investors.' Those on defined benefit pensions — often referred to as gold-plated schemes — as well as state pension recipients, are unaffected. But the wider economic fallout could be grim. The International Monetary Fund last month sharply downgraded the UK's growth forecast, blaming trade tensions. In response, markets are now pricing in interest rate cuts, with the Bank of England expected to trim rates from 4.5% to 4.25% this Thursday. In the meantime, ministers are racing to shore up Britain's trade position. A deal with India was announced this week, while talks are ongoing with the US over a post-Brexit pact that could see punitive tariffs — including a 25% levy on British-made cars — scrapped. Read More NatWest and Lloyds to axe a further 81 bank branches A separate agreement with the EU is expected to be unveiled later this month. READ SOURCE
