In the lead up to the general election, the Labour manifesto was notably vague about pension policy, aside from promising a review of the industry.
That’s why it came as a surprise on 17 July 2024 when the government announced the “Pension Schemes Bill” during the King’s Speech.
This bill will introduce several changes designed to streamline pensions and improve outcomes for savers. The government also wants to encourage more investment in UK markets.
As you prepare for retirement, it’s important that you are aware of any changes to pension legislation and understand how they might affect you.
Read on to learn whether Labour’s pension announcements could help or hinder your retirement plans.
New measures could make it easier to track down “lost” pension pots
One common challenge that you might face when saving for retirement is that you have several old pension pots you’ve lost track of.
This has become an issue for many savers since the introduction of auto-enrolment, in 2012. Since the legislation came into effect, employers have been obliged to enrol you in a pension scheme if you meet the minimum age and earning requirements.
However, your employer chooses which pension scheme to enrol you in, and if it’s different from your previous job, you’ll start paying into a brand-new pension plan. The previous pension is still yours, but, unless you decide to make personal contributions, you’ll no longer pay into it.
As a result, if you change jobs several times over the course of your career, you could have numerous pension pots that you’ve forgotten about or lost track of.
Indeed, according to PensionBee, there were an estimated 4.8 million “lost” pension pots in the UK in 2023. And nearly 1 in 10 workers believed they could have lost a pot worth more than £10,000.
Fortunately, in its Pension Schemes Bill, the government announced plans for a system that would automatically consolidate small pension pots. The precise details are yet to be released, but this measure could make it easier to keep track of your retirement savings.
Additionally, finding your lost pensions and combining them with the rest of your savings could give you more control over how you manage your retirement fund. It could also help to reduce the fees you may be paying and lessen the admin of keeping track of what you have, making it easier to understand how much you have saved.
The “value for money framework” may improve outcomes for pension savers
The government also announced the “value for money framework” to ensure that pension schemes deliver good value to savers.
As part of this framework, the government will introduce a standardised test that trust-based defined contribution (DC) pension schemes must pass to demonstrate the value they provide.
According to the Guardian, the government has proposed a “traffic light” system for grading pension schemes. Each scheme will be rated either:
- Green – the pension scheme offers value for money
- Amber – the pension scheme doesn’t currently offer value for money, but the regulator believes it could be improved to provide value in a reasonable space of time
- Red – the pension scheme doesn’t offer value for money and the regulator doesn’t believe it will in a reasonable space of time.
Providers with red schemes would be obliged to consider offering more suitable alternatives to savers.
The hope is that this will lead to consolidation in the pensions market. As red and amber schemes are closed or improved, this should result in a smaller number of well-performing green options.
This could encourage more effective investment of the pension wealth held by providers and improve outcomes for savers.
New rules will require all pension providers to offer “retirement products”
The government also announced measures to ensure that all pension schemes offered options for generating a retirement income. In the future, all pension schemes will be required to offer “retirement products” of some kind.
This could include default investment options, so you can grow your wealth and continue generating an income in retirement, rather than simply having a static savings pot.
Many pension schemes already offer retirement products, but the new legislation could guarantee that more savers have greater opportunities to generate a regular income in later life.
Further details should provide more clarity in the future.
More changes are likely coming soon
The Pension Schemes Bill made several changes to pension provision, but it may only be the first step in a larger programme of reforms.
The Labour government promised to conduct a full review of the pensions landscape, and once this review is finished, it’s possible that more recommendations may follow.
Only time will tell what those changes might be, but there has been speculation that there could be changes to the way pensions are taxed. This is because chancellor Rachel Reeves recently warned of a £22 billion “black hole” in the public finances and hinted that tax increases may be necessary.
Prior to the election, the Conservative government abolished the “Lifetime Allowance” (LTA) – the total amount you could accrue in your pensions without triggering an additional tax charge on withdrawal. At the time, Labour suggested they would reverse this change if elected, but later said they wouldn’t reinstate the LTA.
As such, the government’s policy is unclear and there are concerns they could reintroduce the LTA in the future. If they do, this might mean you pay more tax when drawing from your pensions.
Alternatively, Labour could reduce the tax relief you receive on your pension contributions to raise revenue, or make pension funds liable for Inheritance Tax.
Currently, we don’t know whether the government will implement any of these changes, but it’s likely that more pension reforms of some kind could be announced soon. It’s important that you’re prepared for any changes, so you can continue building wealth in your pensions and achieve your dream lifestyle in retirement.
We are here to help you achieve this by staying ahead of pension reforms and adjusting your financial plan, where necessary.
Get in touch
If you’re concerned about upcoming pension reforms, we can give you guidance.
Please contact us at hello@ardentuk.com or call or message us on WhatsApp on 01904 655 330. As an award-winning financial advice company with advisers included in the 2024 VouchedFor Top Rated guide, you can be sure that we’re a bona fide company providing excellent advice and high-quality service.
Please note
This article is for general information only and does not constitute advice. The information is aimed at retail clients only.
Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.
A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future performance.
Workplace pensions are regulated by The Pension Regulator.
The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates, and tax legislation may change in subsequent Finance Acts.
