A healthy pension pot allows you to fully enjoy the freedom that retirement brings, with a sense of security and peace of mind. Yet, government reports show that nearly 15 million people are under-saving. By 2050, retirees could have 8% less private pension income than retirees today. To address this retirement crisis, the government is introducing several significant pieces of legislation, including the Pension Schemes Bill.
What does the Pensions Schemes Bill mean for me?
The Pension Schemes Bill could provide increased retirement security and better pension management for retirees. The bill could also help boost your pension value and provide greater support for investing. Here’s our summary of the legislation's key points.
Key changes
Defined contribution scheme (DC) “mega funds”
The new bill recognises that larger pension schemes can make a bigger impact with their investments, thanks to deeper funding pools. By 2030, the government requires all major workplace pension schemes used for auto-enrolment to manage at least £25 billion in assets. The government may also step in with rules designed to encourage more balanced and impactful investment strategies.
Merging small pension pots
During our lives, we can accumulate small pension pots from various places we have worked. It’s easy to lose track of them, and many go unclaimed. Under the new bill, authorised consolidators will automatically merge your old pension pots that are worth £1,000 or less, making it easier to keep track of your savings.
Defined benefits scheme (DB) superfunds
A defined benefit (DB) pension is an older type of scheme that promises a guaranteed income in retirement. Most DB pensions are now closed to new members, and some employers find them costly to maintain. However, transferring them to insurers isn’t always an option.
The new bill allows DB schemes to transfer into a “superfund” for greater stability. A superfund is a large, privately owned pension scheme that takes over older DB pensions, supported by additional funding from outside investors to help keep retirement benefits secure.
Value for money checks
Rather than just looking at fees, the government will begin to measure the quality of a pension scheme by the long-term value it delivers, through investment growth and returns. This will encourage pension schemes to invest proactively and boost the value of retiree pension pots. Underperforming schemes will face pressure to improve or close, and fewer savers will be stuck in low-quality schemes.
More information on how to save
Pension schemes must provide clear options for turning your savings into a retirement income. If you don’t inform them of a saving preference, your pension scheme can assign you to a “default” option.
Transfers out of poor pension schemes
Your pension provider may be able to transfer your savings to a better scheme without needing your consent, but only if it’s clearly in your best interest and they follow strict safeguarding rules. This change could improve the quality of your pension and help ensure your savings continue to grow steadily over time.
H4: A new pension complaint system
The Pensions Ombudsman will be treated like a court for certain pension disputes, reducing the number of cases that need to go through county courts. This provides pension schemes and their members with a faster, more accessible way to resolve complaints. The process of making a complaint will also become quicker and more cost-effective.
Improved pension accessibility if you’re terminally ill
The government is widening access to retirement funds by expanding the definition of “terminal illness.” Under the new rules, anyone with a life expectancy of less than 12 months (up from the current six months) can access their pension earlier. This change ensures that eligible individuals can benefit from their savings when they need them most.
The Pension Protection Fund (PPF) and Financial Assistance Scheme (FAS)
The bill gives the Pension Protection Fund (PPF) the ability to reduce, suspend and cap future levies it charges pension schemes. For retirees, this helps ensure the ongoing security of their pensions. Additionally, members of the PPF and the Financial Assistance Scheme (FAS) will be able to view their expected pension payments on a pension dashboard, providing a clearer view of their future retirement income.
Stay informed on the news that is important to you, with Churchill Living
Changes to pension legislation affect us all, which is why we provide regular updates and practical guidance as new rules come into effect. Want to learn more? Visit the Churchill Living blog to explore the most common financial challenges retirees face, as well as the benefits pensioners can claim to help save money.