Major reforms could boost some pensions by £29000 after rule change | Personal Finance | Finance

Millions of workers are poised for a pension windfall as new legislation aims to merge smaller pension pots, creating larger schemes that promise better value for money. The average worker could see a benefit increase of up to £29,000 due to these reforms, according to heavily queried Labour claims.

The forthcoming Bill will amalgamate small pension pots valued at £1,000 or less into a single scheme certified as offering good value to savers. Thanks to the proposed changes, an estimated 20 million pension savers are expected to be better equipped for retirement.

However, while this change will simplify pension incomes for workers, some have questioned how the DWP came about this figure. David Belle, Founder and Trader at Fink Money, asked: “With regards to getting value for money from their pension, what is the benchmark? Will people know what the benchmark is? We need to stop politicians doing things. Genuinely. They’re clueless.”

Yet, some within the pensions industry and consumer groups have endorsed the reforms, as many workers find it challenging to manage multiple small pensions accrued from changing jobs and often incur high fees that drag down their retirement income. The reforms follow a long-awaited scheme to make it easier for workers to keep track of their pots through an online pensions dashboard.

The Pension Schemes Bill returned to Parliament for its second reading on Monday, July 7, and will now proceed to the committee stage for scrutiny.

Pensions Minister Torsten Bell commented: “We’re ramping up the pace of pension reform, to ensure that people’s pension savings works as hard for them as they worked to save.

“The measures in our Pension Schemes Bill will drive costs down and returns up on workers’ retirement savings – putting more money in people’s pockets to the tune of up to £29,000 for an average earner and delivering on our Plan for Change.”

In the future, pension schemes will be required to demonstrate their value for money, ensuring savers are well-informed about the performance of their investments and safeguarded from languishing in poor-performing schemes indefinitely, reports the Manchester Evening News.

Other measures include:

• New rules creating multi-employer DC scheme “megafunds” of at least £25 billion, so that bigger and better pension schemes can drive down costs and invest in a wider range of assets.
• Simplifying retirement choices, with all pension schemes offering default routes to an income in retirement.
• Increased flexibility for Defined Benefit (DB) pension schemes to safely release surplus worth collectively £160 billion, to support employers’ investment plans and to benefit scheme members.

Minister for Local Government and English Devolution Jim McMahon OBE commented: “This Bill will ensure the Local Government Pension Scheme is fit for the future and harness its full potential, with assets due to reach £1 trillion by 2040, and will strengthen investment in local communities to accelerate growth as part of our Plan for Change.”

According to the Government, the reforms will also unlock long-term investment in the UK economy by removing barriers to growth, strengthening the security and governance of pension schemes and ultimately delivering better returns for people saving for their retirement.

Zoe Alexander, Director of Policy and Advocacy for PLSA, remarked: “The introduction of the Pension Schemes Bill is a significant milestone, bringing forward necessary legislation to enact important reforms that have the full backing of the pensions industry.

“This includes small pots consolidation, the Value for Money regime, decumulation options and changes to give DB funds more options for securing member benefits over the long-term.

“Once fully implemented, these measures should reduce the cost of administering pensions, remove complexity for savers and help ensure schemes are maximising the value they provide members.”