The more than 15 million people who save into workplace pension schemes in the UK may benefit from a shake-up designed to add £11,000 to the average retiree’s savings. The package of measures announced in the king’s speech on Wednesday includes moves to help workers with many small pension pots by bringing them together. Most workplace pension schemes operate on a defined contribution basis, which means the amount of money someone gets in retirement depends on the performance of their investments and any charges they pay to the provider. Their income throughout retirement is also determined by how they choose to take the money out of their fund. However, the pensions schemes bill announced by King Charles on Wednesday will include rule changes that Labour says could help an average earner who saves into such a scheme over their lifetime to finish with more than £11,000 extra in their pension pot on retirement.
The shake-up includes the introduction of a “value for money test” for providers, which the government said should result in “a smaller number of well-performing, well governed schemes which will not only improve outcomes for savers but is likely to lead to more productive investment of funds”. People who move between workplaces and end up with lots of small pension pots will have them all brought together, a move which should help them keep track of their money and may increase the performance of their investments. It will also reduce the number of loss-making pots that schemes need to run. Other changes include requiring pension schemes to offer their members retirement products so that when they stop work they have an income and not just a pot of money. The government said this would improve outcomes for savers and was likely to lead to more funds being invested for longer, which could boost economic growth. However, there were no changes to contribution rates for savers who are auto-enrolled into their workplace pension. Becky O’Connor, the director of public affairs at online pension provider PensionBee, said: “Millions of people are currently not saving enough for retirement, so it’s extremely encouraging to see pensions at the top of the new government’s agenda.” O’Connor said PensionBee’s research suggested 4.8m pension pots were currently lost, and automatic consolidation should prevent this, and reduce the fees being paid. Patrick Heath-Lay, the chief executive of People’s Partnership, which has 6.5 million savers through workplace schemes, said: “Plans to consolidate the pensions sector, require default retirement products and benchmark pension schemes for value for money have been discussed for some time. “Moving them forward quickly will be challenging for the industry and we expect the pensions sector to change rapidly over the course of this parliamentary term.”