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Sir Keir Starmer has set out legislation designed to enable more than 15mn Britons to earn more on their pensions savings, as the Labour prime minister builds on retirement reforms started under the last Conservative government.
Sweeping measures announced in the King’s Speech on Wednesday would seek to boost returns for retirement savers through greater pooling of pension plans, and “value for money” tests to drive out poorer performing funds.
Ministers are presenting about half of the 40 bills put forward in the speech, which marks the state opening of parliament, as legislation to boost economic growth — a theme that dominated the general election campaign.
The government estimates the new pensions measures, which would take forward reforms started under previous Conservative administrations, could increase the value of the average earner’s pot by about 9 per cent — or £11,000 — over their career. Some 15mn people save in private sector pension schemes, according to the government.
But absent from the Pension Schemes Bill were proposals to raise minimum pension contributions for millions of workers, a change that unions and industry had called for during the election campaign.
Sir Steve Webb, partner at actuarial firm LCP and former Liberal Democrat pensions minister, said almost all of the measures in the bill had been put forward by the Tories.
“We’re not seeing the new government’s hands on this at all really,” he said.
Key plans include ensuring that small pension accounts are automatically brought together in one place, helping savers keep track of their pension pots and reducing costs for providers managing smaller lossmaking funds.
The bill would also introduce a “value for money” test for defined contribution schemes, where members have no certainty over what income they will get in retirement.
The test would aim to drive poorer performing funds out of the market, mirroring changes in other big pension markets, including Australia.
To maximise returns on savings, the bill would seek to ensure that schemes offer specific products that can provide returns, rather than simply acting as savings pots.
Ministers hope this change would improve outcomes for savers, as well as ensuring money is invested in funds for longer periods and potentially unlocking some of the £158bn in assets held by these schemes to boost economic growth.
The government also plans to push ahead with measures to expand the commercial pension “superfund” market, which would offer more options for employers to offload traditional defined benefit pension plans if they were struggling to support them.
This reform could help consolidation in the £1.4tn defined benefit market, where pensions have historically been more expensive for employers because they promise guaranteed retirement benefits calculated on salary and length of service.
Starmer is not taking forward a proposal by the Tony Blair Institute for Global Change to expand the remit of the Pension Protection Fund.
The think-tank founded by the former Labour prime minister had argued that the UK’s £32bn-in-assets retirement scheme lifeboat should be allowed to take on company schemes that had not failed, with its expanded asset pool potentially put to work for UK investment.
Webb said he “would have expected some nod in that direction”.
The government also said it would seek to re-establish The Pensions Ombudsman as a “competent court”, meaning individuals should not need to apply to the courts to recover money from overpayments, alleviating pressure on the justice system.
But the bill outlined no plan to increase the minimum contributions both workers and employers are required to make into company pensions, which at present total 8 per cent of workers’ pensionable salary.
The Trades Union Congress, the umbrella body for the UK labour movement, had pressed Labour during the election campaign to set out a plan to increase contributions to at least 15 per cent.
Andy Briggs, chief executive of Phoenix Group, the UK’s biggest retirement savings company, said: “The single biggest lever we can pull to secure savings adequacy is raising minimum contributions.”
