Chancellor promises ‘big bang’ for pensions as it launches major review – and millions could boost pots by £11,000
THE Chancellor has launched a huge review of pension schemes that aims to add over £11,000 extra to a typical retirement pot.
Rachel Reeves has opened the landmark pensions review as part of the new Government’s mission to “boost growth and make every part of Britain better off”.
Pension schemes are expected to manage about £800billion by 2030, and the review will look at how the schemes can be encouraged to invest in more productive assets like infrastructure.
The aim is that this will help economic growth, plus the Treasury said it would also ensure better returns for savers, giving the average pension pot a boost of over £11,000.
The announcement follows the inclusion of a Pension Schemes Bill in Wednesday’s King’s Speech.
It aims to bring in a new system to enable small pension pots to be automatically combined into one place, helping to get better returns and helping savers keep track of their pensions.
Other measures being considered in the review by the Government include further consolidation of the Local Government Pension Scheme (LGPS) for England and Wales, which is currently split across 87 funds and pays £2 billion a year in fees alone.
Rachel Reeves said: “Despite a very challenging inheritance, this new Government is getting on with the job of delivering our mandate to get the economy growing so we can make every part of our country better off.
“The review we are announcing is the latest in a big bang of reforms to unlock growth, boost investment and deliver savings for pensioners.”
The Chancellor added that “there is no time to waste” and that she is “determined” to fix the foundations of the economy.
The review will be led by new pensions minister Emma Reynolds, the first to work jointly with the Treasury and the Department for Work and Pensions.
Ms Reeves and Ms Reynolds will chair a meeting with the pensions industry on Monday to discuss the review.
Ms Reynolds said: “Over the next few months the review will focus on identifying any further actions to drive investment that could be taken forward in the Pension Schemes Bill before then exploring long-term challenges to ensure our pensions system is fit for the future.
“There is so much untapped potential in our pensions markets, with an industry worth around £2trillion.”
Ms Reeves also said that the measures set out in the Pension Schemes Bill will help drive higher investment and a better deal for future retirees.
What is being proposed in the Pension Schemes Bill?
TO help pension savers, the Pension Schemes Bill will include the following changes:
- A new system to enable small pension pots to be automatically combined into one place, helping to get better returns and helping savers keep track of their pensions.
- Ensuring all savers are saving into pension schemes which must demonstrate they are delivering “value for money” through a new test.
- A new requirement for pension scheme trustees, who oversee the running of pension schemes, to offer retirement income products to savers and guide them on which are most suitable.
- Creating new “superfunds” by consolidating “defined benefit” (DB) pension schemes, which pay a guaranteed income for life
- Changing the definition of a “terminal illness” to allow eligible savers to receive a lump sum payment earlier.
- Strengthening the power of the Pensions Ombudsman to help reduce costs.
The announcement of the review has been welcomed by the pensions sector.
Aviva Director of Workplace Savings and Retirement Emma Douglas said: “We welcome the government’s determination to undertake a pensions review as an early priority.
“We fully support the Government’s ambition to get pension funds invested in a way that both supports UK growth and improves outcomes for savers.”
Ms Douglas said Aviva sees this as an “important next step” and looks forward to working with the Government and industry on the review.
Pensions and Lifetime Savings Association (PLSA) director of policy and advocacy Nigel Peaple said: “It is positive the Government has acted quickly to initiate its promised review of our pensions savings system.
“With the right regulatory framework and Government action to ensure a healthy pipeline of investible opportunities, we look forward to working with Ministers to create a pension system that works for the country and for savers.”
How do I consolidate my pension?
IF you have several workplace pensions that you're no longer paying into, you might be better off consolidating them into a single pot.
There are several advantages to this.
The first is that by having your savings all in one place, you’ll only pay one set of fees.
You can also choose which pension provider you want to transfer the different savings to, so you can pick the best one for you.
It also makes it easier to keep track of your money.
You might want to move all your money to whichever of your existing pots has the best fees, or you could move it all to your current employer pension (if you have one).
Alternatively, you may wish to move money to a private pension or use a consolidator service, such as Pension Bee, Aviva, or Wealthify.
Make sure you compare and contrast your options carefully so that you’re picking the best home for your savings.
You’ll need to look at fees but also might want to consider the investment options available.
If any of your pots are over £30,000 you’ll need to get independent financial advice, but even if you have lots of smaller pots you should consider speaking to an independent financial advisor (IFA).
You can use Unbiased or VouchedFor to find a recommended advisor near you.
Also ask whether you’ll be charged a fee to exit your existing provider and to join your new provider, plus whether the age at which you can access your pension is different – for most people this is currently 55, but is set to rise to 57.
You also need to ensure the pension you’re leaving doesn’t come with valuable added perks, or you could lose out.
Stay alert for pension transfer scams as fraudsters often target people transferring their pension with promises of investments that are too good to be true.
How can I start boosting my pension now?
The good news is, it’s never too late to start boosting your pension pot.
Every worker already pays into a workplace pension, unless they have opted out.
Your employer has to contribute a minimum of 3% and you pay in at least 5%. This includes a contribution from the Government, in the form of tax relief.
You also basically get more cash for free if you pay into a pension as the Government contributes on top in the form of tax relief.
This means some of your cash that would have gone to the Government as income tax is paid to your pension instead.
Increasing your pension contribution by 1% – or even more, if you can afford to do so – will see your retirement savings start racking up.
Money that goes into your pension is also invested with the aim of growing it over time, so the more you can add, the more extra you can make.
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