DWP launches major pension shake-up to make 20million Brits £1,000 better off
A major Department for Work and Pensions (DWP) was introduced this week and its set to boost the retirement savings by over £1,000 for over 20million Brits.
Labour launched its new Pension Schemes Bill yesterday which it hopes will make pensions simpler to understand and manage. The goal of the bill is to "drive better value over the long term" to give people more money when they come to retire.
The most significant part of the bill is the DWP's plan to merge smaller pension pots together. The benefits and pensions department says having multiple small pots often leads to a small return for savers. This is because they have to pay multiple flat rate charges.
However, by consolidating the smaller pots into larger ones, the returns will increase. Labour says it could potentially boost retirement savings by around £1,000. The bill will merge all pension pots holding less than £1,000 together into one pot for each individual. Currently, there are around 13million pension pots which have less than a grand in them.
The Bill also introduces a new system to show how well pension schemes are performing. This will cover "Defined Contribution" (DC) schemes, which are a type of private pension that you contribute to on a regular basis.
The DWP says this will help savers understand whether their scheme is giving them good value. If it's not, Brits will be able to move their savings somewhere.
The Bill will also require schemes to offer "clear default" options to grow pension pots for those approaching retirement. This means people will have "clearer, more secure routes to decide how they use their pension money over time."
Other measures part of the bill include:
Implementing new rules creating multi-employer DC scheme 'megafunds' of at least £25billion, so that "bigger and better pension schemes can drive down costs and invest in a wider range of assets"
Consolidating and professionalising the Local Government Pension Scheme (LGPS), with assets held in six pools that can invest in local areas infrastructure, housing and clean energy
Increased flexibility for Defined Benefit (DB) pension schemes to safely release surplus worth collectively £160billion, to support employers' investment plans and to benefit scheme members
Major players within the pension sector, including Phoenix Group, NEST, Now Pensions, and Royal London, have supported the new bill. The Pensions Regulator and the Pension Protection Fund (PPF) have also welcomed the bill.
Work and Pensions Secretary Liz Kendall said: "Hardworking people across the UK deserve their pensions to work as hard for them as they have worked to save, and our reforms will deliver a huge boost to future generations of pensioners.
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'The Bill is about securing better value for savers' pensions and driving long-term investment in British businesses to boost economic growth in our country.
'As part of our Plan for Change we're helping people find work, stay in work, and ensuring that work pays them back to give them the secure income in retirement they deserve.'
Chancellor of the Exchequer Rachel Reeves said: "The Bill is a game changer, delivering bigger pension pots for savers and driving £50 billion of investment directly into the UK economy– putting more money into people's pockets through the Plan for Change.'
Minister for Pensions Torsten Bell added: "We are ramping up the pace of pensions reform. Workers deserve to get better bang for each buck saved, and these sweeping reforms will make sure they do.
'Pension saving is a long game, but getting this right is urgent so that millions can look forward to a higher income in retirement.'
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