It’s some three weeks since the election and the new Government has unveiled a raft of measures in its first King’s speech, including some wide-ranging changes to pensions.
The Pension Schemes Bill is being hailed as a win for savers with an estimate it could put an extra £11,000 into retirement pots.
In short, workplace pension schemes will be required by law to offer retirement products under the new bill, which would mandate that all occupational pension schemes offer retirement products, ‘including default investment options, to their members’.
There is some concern in the financial advice industry because master trusts and other workplace pension providers could offer members drawdown and annuity products at retirement, pitting them against advisers.
That may not sound like a problem for the consumer but there is potential for a ‘one-size-fits-all’ approach with corporate salespeople pushing these products and little, if any, advice tailored to the individual, as you would expect from an IFA (Independent Financial Adviser).
There are a number of other measures in this bill, which the Government estimates could boost savers’ pension pots by up to 9%. It is worth noting many of these plans were already placed on the books by the outgoing Government and are not ‘new’ in that sense.
Other aims of the bill include the consolidation of small deferred defined contribution (DC) pots into one place, although no details were given about how this would be done.
This one could be very welcome if it can be made to work properly, because we see many clients who have pension pots scattered in different places following a few decades of work, but unfortunately they cannot always be consolidated.
In a similar vein, it also proposes to use new ‘superfunds’ to consolidate defined benefit (DB) pension schemes (which pay a guaranteed income for life) into larger vehicles.
There are also plans to establish a new value-for-money framework for trust-based DC schemes to consolidate the market into a ‘smaller number of well-performing, well-governed schemes’.
The proof will be in the pudding and the devil will be in the detail but on the face of it, most of this is not too controversial and certainly measures such as consolidating errant pension pots will be appreciated by clients as well as their advisers, who all too often bang their heads against the wall of awkward pension providers.
We would strongly suggest the claim of ‘9% more’ in your pension pot be taken with a dose of salts as ultimately the amount of pension available depends on the performance of the pension fund’s investments.
These changes could improve returns for consumers, but no investment is without risk and the level of return can never be guaranteed.
That said, if this can simplify the process for people and consolidate some of those rogue pension pots, it should be an improvement on that score.
As ever, if you wish to discuss your pension needs, please do get in touch with an IFA such as ourselves to find out more.
