A shake-up that aims to increase the average pensioner’s savings by £11,000 could benefit the more than 15,000,000 people in the UK who contribute to workplace pension schemes.
The king announced a package of measures in his speech on Wednesday, including steps to assist workers who have many small pension pots and bring them together.
The majority of workplace pension plans operate on a defined-contribution basis. This means that the amount someone receives in retirement is dependent on their investment performance and any fees they pay to the provider.
How they withdraw money from their retirement fund will also determine how much income they receive in retirement.
The pensions scheme bill, announced by King Charles Wednesday, will include rule modifications that Labour claims could help a typical earner save into such a plan over their lifetime and finish with an extra £11,000 in their pension pot at retirement.
The shake-up will include the introduction of “value-for-money tests” for providers. According to the government, this should lead to “a smaller number well-performing and well-governed schemes, which not only will improve outcomes for the savers, but also likely to result in more productive investments of funds.”
The pension pots of people who change jobs and have many small pots of money will be consolidated. This should make it easier for them to keep track of the money they are investing and could improve their performance. This will reduce the amount of pots with losses that schemes have to maintain.
Pension schemes must also offer retirement products to their members so that they can have a source of income when they retire and not only a lump sum.
The government stated that this would lead to a better outcome for savers, and more money being invested longer. This could boost economic growth.
There were no changes in the contribution rates for those who automatically enroll into their workplace pension.
Becky O’Connor is the director of Public Affairs at PensionBee. She said: “Millions of people do not save enough for retirement. It’s encouraging to see that pensions are at the forefront of the agenda of the new government.”
O’Connor stated that PensionBee’s analysis suggested 4.8m pensions pots are currently lost. Automatic consolidation should prevent this and reduce the fees paid.
Patrick Heath-Lay is the chief executive officer of People’s Partnership. The company has 6.5 millions savers via workplace schemes. He said: “Plans for consolidating the pensions industry, requiring default retirement products, and benchmarking pension schemes to determine value for money, have been discussed since some time.
The industry will have to move quickly in order to meet the new standards. We expect that the pensions sector will change dramatically during this term of parliament.
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