People's savings are not working hard enough, so we will overhaul the pensions system

Telegraph

11 hours ago

Tomorrow our new Pension Schemes Bill will have its second reading in the House of Commons. It will overhaul the pension system to ensure your savings work as hard as you worked to build them in the first place.
Fundamentally it will prioritise higher rates of return for pension savers, putting more money into people's pockets in a host of different ways. For the first time we will require pension schemes to prove they are value for money, focusing their mindset on returns over costs and protecting savers from getting stuck in underperforming schemes for years on end. This plays a significant part of this Government's plan to grow the economy and put people in a better position during retirement as part of our Plan for Change.
We are also at last addressing the small pension pots issue. Recently I was out door-knocking in Swansea. A women in her mid-30s told me something was really winding her up – the headache of trying to keep track of the small amounts of pensions savings she had from old jobs. There are now 13 million small pension pots floating around the UK pension system, each holding £1,000 or less. That number is increasing by around one million a year. That isn't just a hassle, it costs when savers can end up paying multiple flat fees on several pots. And it's costing the pension industry around £225 million each year administering them all.
Our answer is to automatically bring an individual's small pots together into one pension scheme that's been certified as delivering good value for savers. And, of course, anyone that wants to can opt out. This change on its own could boost the pension pot of an average earner by around £1,000.
Size doesn't always matter, but it does for pensions because bigger funds have lower costs and can invest in a wider range of assets. Both can drive up returns for savers. So we will also accelerate the consolidation of pension schemes into 'megafunds', with assets of at least £25 billion. Bigger funds will be better placed to invest in productive assets like infrastructure and housing, so this approach will also unlock more investment into the UK.
Making your savings simple
I appreciate younger readers in particular may not have thought in great detail about their pension plan. In fact, over three quarters of pre-retirement defined-contribution pension savers don't have a clear plan to access their retirement savings. And when it comes to retirement, too many of those reaching that point immediately draw down all their savings in one go.
So, through our Bill, we will simplify things, requiring pension schemes to provide default retirement options – clear, secure routes for people to use their pension pot throughout retirement. People will still have the freedom to choose of course, but we want to support more people through complex choices that too often feel overwhelming, and where mistakes can cost thousands of pounds.
Pensions sound techy, but this is about the basic job of government: helping to raise everyone's living standards. And at the end of the day, it's our pensions we live on in retirement. Even if that is a long way off for you, in fact especially if it is, these reforms will make a massive difference.
After all, it's my job as the pensions minister to make sure that your pension savings work as hard for you as you did to earn them.