Pensioners are £5,000 worse off on average (Image: Getty)
A major overhaul of pensions rules will be introduced by the government in a bid to stop pensioners losing £5,000 each on average.
The Department of Work and Pensions has today (Monday, July 13) announced a ‘New Value For Money Framework’ which will overhaul pensions rules.
The DWP says the plan will ‘boost the retirement pots of pension savers’ and ‘ensure savers get the best possible returns’.
Savers will be able to see how the returns their pension scheme delivers compares to others, while the poorest performing schemes will have to improve or close.
Schemes will be assessed on their investment performance, costs and charges, and quality of service, and rated from red (for poor value) through to green (outperforming on value).
From 2028, larger schemes, including Master Trusts, large single employer schemes, and multi-employer contract-based schemes which are open to new employers, will complete and publish these Value for Money assessments. The changes will be rolled out to all workplace pension schemes from 2029.
Default pensions will also be introduced so that savers reaching retirement will be able to convert their savings into a reliable retirement income. This means that, while people will always be free to choose a different option if they prefer, the system will no longer rely on savers having to navigate complex financial decisions alone in order to get a decent retirement income, the DWP said.
Torsten Bell, Minister for Pensions, said: “Our task is to level up the quality of the pensions private sector workers receive, towards those in the public sector. For the first time, we’re making sure savers can see whether they are getting a good deal from the pension they’re saving into.
“We can’t have people working hard to earn the money they save towards retirement, only to have those funds sitting in schemes that aren’t working just as hard on their behalf.
“The stakes are high, when the gap between the best and worst performers could cost a saver with a £10,000 pot over £5,000 across just five years.
“This is part of the biggest pension reforms for a generation, which are now entering the delivery phase that we are publishing the timeline for today. They represent a wide consensus across the pensions industry, who have helped shape plans that also tackle the proliferation of small pension pots, drive the move to bigger and better pensions schemes, and simplify the process for savers of turning their hard-earned savings into a decent retirement income.”
James Carter, Head of Platform Policy at Fidelity International, said: “We welcome the Government’s roadmap for pension reform and the clear timetable it sets out for delivering the measures in the Pension Schemes Act. Providing greater certainty on the direction and pace of change will help the industry plan effectively and continue its focus on improving outcomes for savers.
“It is particularly encouraging to see the close collaboration between the DWP, Treasury, FCA, TPR and industry partners in shaping and implementing these changes. This approach will be crucial to ensuring changes are delivered successfully and in a way that works for savers.
“At the heart of the roadmap is the Value for Money framework. Moving beyond a historic focus on cost alone, towards a broader assessment of long-term value and savers outcomes is an important step in helping more people achieve a better retirement.”
