Labour government’s new pension rules will give millions of people £15,000 more

Pensioners are set to receive an £11,000 boost under the Labour government’s shock new savings plans, with the average earner who saves throughout their life set to receive thousands more in their pension funds under changes to the Pension Schemes Act.

The new law will prevent people from losing control of their pension funds and will require pension schemes to offer retirement products so people have a pension, not just savings, when they stop working. This could help the average defined contribution earner build up more than £11,000 more in their pension fund by the time they retire.

It will also ensure that the Pensions Ombudsman acts as a competent court to ease pressure on the court system. A real minimum wage that includes a lifeline will be introduced under the Employment Rights Act. Exploitative hourly contracts and firing and rehiring tactics will be banned.

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Former Pensions Minister and LCP partner Steve Webb said: “This Pensions Bill largely reflects ‘business as usual’ when it comes to pensions policy. There appears to be nothing in the legislation that has so far been a clear ‘Labour approach’ to pensions, and a Conservative Minister would be happy to introduce this legislation. It may inevitably be some time before we see how the new Government’s programme differs from that of its predecessor. However, this means that any distinct policies will have to await legislation later in this Parliament and may take time to come into force.”

“While the government is understandably keen to squeeze out the smallest pension schemes, some of which may not be well run or generate good returns, it is important to remember that the vast majority of people do not save in small pension schemes. For most savers, it is the performance of the largest schemes, including the industry-wide Master Trusts, that matters, and the new VFM framework is unlikely to change much for these schemes, at least in the short term,” he added.

“One area where the new government may need to take further action is the consolidation of small deferred pension funds. The measure in the Pension Schemes Act was designed to apply only to ‘micro’ pension funds below £1,000. However, this will still leave millions of people with slightly larger pension funds that will remain fragmented and spread across the pension landscape. Unless micro fund consolidation is radically expanded, new policy thinking will be needed to address pension fragmentation.”