![Deep dive into the pension schemes bill](https://www.ft.com/__origami/service/image/v2/images/raw/https%3A%2F%2Fs3-eu-west-1.amazonaws.com%2Ffta-ez-prod%2Fez%2Fimages%2F1%2F0%2F5%2F9%2F7759501-1-eng-GB%2F2161794421.jpg%3Fv1?width=700&source=ftadviser)
The pension schemes bill, unveiled by the King today, is designed to see pension savers have an additional £11,000 or more in their pots, according to the government.
Announced at the state opening of parliament, the bill aims to create a private pensions market that encourages consolidation and focuses on value and outcomes for members.
The measures include:
- Preventing people from losing track of their pension pots through the consolidation of DC individual deferred small pots.
- Ensuring all members are saving into pension schemes delivering value through the ‘value-for-money’ framework. This will include a standardised test that trust based DC schemes will need to meet to demonstrate they deliver value, which should lead to a consolidation in the pensions market. According to the bill, the FCA will ensure the framework is applied to contract schemes and consistently across the whole pension market.
- Requiring pension schemes to offer retirement products so people have a pension and not just a savings pot when they stop work by placing duties on trustees of occupational pension schemes to offer a retirement income solution or range of solutions, including default investment options.
- Consolidating the DB market through commercial superfunds to offer greater protection to members in closed legacy DB schemes.
- Reaffirming the Pensions Ombudsman as a competent court and removing the need for pension schemes to apply to the courts to enforce TPO decisions in relation to overpayments recovery.
- Amending the special rules for end of life and extending the definition of ‘terminal illness’, allowing eligible members within the Pension Protection Fund and the Financial Assistance Scheme to receive a lump sum payment at an earlier stage.
The government estimates that introducing ‘value-for-money’, addressing small pots, and guided retirement products measures may lead to around 9 per cent higher pension pots at retirement for an average earner when saving over a career.
Although it said auto-enrolment was a “huge success” the government highlighted the UK still had high levels of under saving with around four-in-10 working-age individuals under saving for retirement.
The government also pointed out that ongoing wide variation of performance across pension providers, where individuals are reliant on their employer to choose a pension scheme on their behalf yet face the impacts of poor investment performance, will only get worse if not tackled.
Industry reaction
Pete Glancy, head of policy at Scottish Widows said the bill will help “crack the retirement crisis” and conclude the initiatives set out by the previous government.
“The big steps required will need a broad consensus, like that achieved by the pensions commission which brought the game-changing auto enrolment.
“What we now need is a ‘lifetime savings commission’ that can consider how to bring better retirement outcomes for the nation by looking at broader savings challenges including financial resilience together and not as separate parts,” he added.
Calum Cooper, head of pensions policy innovation at Hymans Robertson said the pensions industry would need clarity with a “practical road map and clear and attractive opportunities to invest at scale”.
He continued: “Given how important pensions are to everyone it’s disappointing to see that the pensions review, promised in the Labour manifesto, was not included in the King’s speech.
“This is a strong start but there are some tough choices to make beyond consolidation and decumulation defaults, for example getting the self-employed saving and increasing savings levels.
“An independently led review, with cross party support would give us the best chance of providing meaningful change for a generation that will ensure sustainable pensions. We hope it will be high on the government’s agenda and included in the chancellor’s budget in the autumn.”
Alastair Black, head of savings policy at Abrdn, said reform needed to be approached with consensus and a “long-term” view in mind adding that “more could be done”.
“While the proposed bill covers the requirement for trustees to offer retirement solutions and default investment options, we know that people will get better options if they engage with making decisions appropriate to them.
“So alongside this bill we need to progress at pace on the advice guidance boundary to support providers and advisers alike to provide efficient and effective support to all.'