King's Speech 2024 - Pension Schemes Bill

Wednesday, 17 July 2024 11:30

Pension Schemes Bill “Bills will be brought forward to strengthen … pension investment” The Pensions Schemes Bill will support over 15 million people who save in private-sector pension schemes get better outcomes from their pension assets and support the Government's mission to deliver growth. This Bill is designed to increase the amount available for pension savers and could help an average earner, who saves over their lifetime in a defined contribution...Request free trial

Pension Schemes Bill

“Bills will be brought forward to strengthen … pension investment”

The Pensions Schemes Bill will support over 15 million people who save in private-sector pension schemes get better outcomes from their pension assets and support the Government's mission to deliver growth.

This Bill is designed to increase the amount available for pension savers and could help an average earner, who saves over their lifetime in a defined contribution scheme, to have over £11,000 more in their pension pots with which to secure their retirement income.

What does the Bill do?

A private pensions market that encourages consolidation and focuses on value and outcomes for members will not only enable security in retirement, but also enable pension schemes to invest in a wider range of assets, driving growth.

The Bill's measures include:

preventing people from losing track of their pension pots through the consolidation of Defined Contribution individual deferred small pension pots. This will enable an individual's deferred small pots to be automatically brought together into one place to maximise income in retirement, and deliver value for every saver. This measure will also benefit pension schemes, which currently are required to manage a substantial number of loss-making pots, undermining their ability to invest in improving their offer for savers.

ensuring all members are saving into pension schemes delivering value through the Value for Money framework. Introducing a standardised test that trust based defined contribution schemes will need to meet to demonstrate they deliver value. This should result in consolidation in the pensions market by leaving a smaller number of well-performing, well governed schemes which will not only improve outcomes for savers but is likely to lead to more productive investment of funds. The Financial Conduct Authority will ensure the framework is applied to contract schemes and therefore 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, to their members. This will improve outcomes for savers and is likely to lead to more funds being invested for longer, giving the potential for investments in productive assets – boosting economic growth.

consolidating the Defined Benefit (DB) market through commercial Superfunds. This will offer greater protection for members in closed legacy Defined Benefit schemes from the risk of losing part of their pension if their employer becomes insolvent.

reaffirming the Pensions Ombudsman (TPO) as a competent court, removing the need for pension schemes to apply to the courts to enforce TPO decisions in relation to the recovery of overpayments. Re-establishing the Ombudsman powers to those of a competent court will alleviate pressures and cost for courts, schemes, and members, ensuring recovery costs are kept to a minimum.

amending the Special Rules for End of Life (Pension Protection Fund and Financial Assistance Scheme (FAS)) 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.

Territorial extent and application

The Bill will extend and apply to Great Britain.

Key facts

We estimate 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.

Automatic Enrolment has been a huge success, with 88 per cent of eligible employees saving into a workplace pension. However, the UK still has high levels of undersaving with around 4 in 10 working-age individuals are undersaving for their retirement (measured by Target Replacement Rates).

Pension schemes can, and do, play a significant role in supporting the UK economy but there is potential for them to play a more significant role. Defined Contribution (Trust) schemes hold around £158 billion in assets across around 1,080 providers. Defined Benefit schemes hold around £1.4 trillion in assets across around 5,000 pension schemes. The measures in this Bill will enable consolidation and more productive investment of funds.

There is 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. This will only get worse if not tackled.

Over a five-year period, a defined contribution pot of £10,000 (with no further contributions) invested into the lowest performing scheme would be worth £10,400, whereas invested in the highest performing scheme it would be worth £15,100 – 46 per cent higher.

On average, 3,000 cases per annum are captured by a court ruling that the Pensions Ombudsman is not a competent court in overpayment cases. Costs for Pensions Ombudsman determinations to be enforced in the county courts are estimated to be circa £2 million.