Pension Scheme Bill announced by King Charles

In his address opening parliament last month, King Charles surprised with the announcement of pension scheme bills “to strengthen audit and corporate governance, alongside pension investment.” 

This will follow what has been hailed by the Chancellor Rachel Reeves as “A landmark pension review” as part of the new Government’s mission to “boost growth”. 

Pension Minister, Emma Reynolds has since explained “Over the next few months the review will focus on identifying any further actions to drive investment that could be taken forward in the Pension Schemes Bill before then exploring long-term challenges to ensure our pension system is fit for the future.” 

Some of the measures in the bill will purportedly include tackling poor performing default funds, the consolidation of small pension pots and occupational pension schemes being required to offer a retirement income solution, or range of solutions to their members.   

Tackling under-performing schemes has long been an aim, featuring in a July 2023 Conservatives package, but also previously being worked on by both the Pension Regulator and FCA with the aim of driving these out from the pension arena, leaving behind fewer, better-value, larger schemes that can facilitate greater investment in growth assets. This new Bill introduces what has been labelled as a Value for Money Framework, effectively establishing a standardised test for value from both trust-based Defined Contribution (DC) schemes and contract-based arrangements to promote better governance and achieve higher returns. 

Another change muted is obliging occupational DC scheme trustees make retirement-income solutions available to members with default propositions if no active choice is made. Rather than, as can often be the case, providing a ‘savings pot’ to members upon obtaining retirement age, this will ensure all members can have an option or options for accessing an income from the policy, possibly negating the requirement to sometimes transfer to a different product and/or provider just to do so. The rationale is that this should not just improve retirement outcomes for members, but also further boost economic growth if funds are invested in productive assets. 

The automatic consolidation of small defined contribution pension pots would also likely be welcome news to those that have many different policies with multiple providers, most commonly a result of different employers over the years. The intention would be to enable an individual’s deferred small pots to be automatically brought together in one place. 

In addition, the notes of the Bill announce an update to the definition of ‘terminally ill’ in the legislation governing the Pension Protection Fund (PPF) and Financial Assistance Scheme (FAS). Currently the PPF and FAS can only make lump sum payments to members with a life expectancy of 6 months or less. The proposed change in definition would double this timescale to 12 months or less, enabling many more to benefit at end of life. 

With the industry being worth around £2trillion, it is clear there is much untapped potential in our pensions market. With much of the Bill seemingly continuing the work of the previous administration’s ‘Mansion House’ reforms, the upcoming Autum Statement on 30 October 2024 should shed more light on Labour’s own fiscal policy and if their execution will indeed help to drive higher investment and a better deal for future pensioners.  

To discuss your own retirement provisions or plans please contact our Financial Planning team on: +44 (0) 330 124 1399 or provide your details on our online enquiry form. 

The content of this article is for information only and does not constitute formal financial advice. This material is for general information only and does not constitute investment, tax, legal or other forms of advice. You should not rely on this information to make, or refrain from making any decisions. Always obtain independent, professional advice for your own particular situation. 

Sources:  

Government press release:  

https://www.gov.uk/government/news/chancellor-vows-big-bang-on-growth-to-boost-investment-and-savings#:~:text=Immediate%20action%20has%20already%20been,contribution%20scheme%20by%20over%20%C2%A3 

Government policy paper: King’s Speech 2024: background briefing notes: 

https://www.gov.uk/government/publications/kings-speech-2024-background-briefing-notes