The Pension Schemes Bill received Royal Assent on 29 April and became the Pension Schemes Act, marking the most significant overhaul of pensions in a decade.
The Act will bring about significant reforms to the UK pensions system, benefitting workers by up to £29,000 by the time of retirement according to the Government.
The Government’s statistics claim that more than 20 million workers will see better retirement outcomes from the reforms.
Minister for Pensions Torsten Bell said: “For too long, our pensions system has been fragmented and rarely ensures that people’s savings are working hard enough to support them in retirement.
“The Pensions Schemes Act will change that by creating schemes that drive down costs, deliver higher returns, and give savers the security they deserve.”
While the focus has been on unlocking billions for the UK economy, as a pension member, you likely have a more immediate question: what does this actually do to my money? Here are the key points:
Enabling small pension pots to be automatically consolidated.
A new ‘value-for-money’ framework to increase pension competitiveness
Creating multi-employer “megafunds” of at least £25 billion to drive down costs and enable investment in a wider range of assets, including in UK businesses and infrastructure.
Consolidating Local Government Pension Scheme assets into pools managed by regulated managers, supporting long-term investment in local infrastructure, housing and clean energy across the country.
Providing Defined Benefit (DB or ‘final salary’) schemes with greater flexibility to release surplus funds, unlocking collectively around £160 billion to support employers and deliver for scheme members.
Pension mandation backlash
The journey to this point hasn't been smooth, however. The pensions industry, led by major trade bodies and asset managers, pushed back during the consultation phases, and wrangling in Parliament between the Houses of Commons and Lords, saw an important part of the bill watered down: pension mandation.
Pension mandation was an attempt by the Government to direct pension schemes where to invest scheme members’ money – with the idea being that it could oblige such schemes to invest more in UK-based assets to help the economy grow.
However, under ‘fiduciary duty’, a pension trustee’s sole legal obligation is to act in the best interest of the member. For years, the industry has argued that mandating where money goes would set a dangerous precedent.
This led to a rebellion in the House of Lords on this point. The Government finally agreed to pare back the powers it sought through the bill, to get it made into law.
While it will still be able to mandate certain investments, pension investment managers will still be able to refuse under their fiduciary duty.
How this affects your pension
It is important to remember at this point that these reforms that individual pensions and retirement plans still have a raft of options available.
For the most part these reforms affect workplace pensions, which in some cases (depending on the scheme) can still be adjusted to better suit your long-term plans.
An adviser can help you determine if your overall risk profile still aligns with your retirement goals, whether your portfolio lacks global diversification or if your current pension provider is delivering value for money under the new fee structures.
Get in touch if you would like help reviewing your pension plans or for any other long-term financial planning matters.