In the King’s Speech, Labour announced a Pension Schemes Bill that aims to introduce several new measures, including tackling lost pension pots and the multiplying pots people end up with during their working life. The Pensions Policy Institute reported that, in 2022, over 2.8 million pension pots – valued at over £26.6bn – had not been claimed. This represented an increase of 75% over the previous four years, with the average lost pension pot worth about £9,500. This figure will surely increase as time passes. This is an enormous amount of money lying unclaimed, and any effort to improve the situation would be welcome.
What We Learned About Pension Changes From The King’s Speech
Measures will also be introduced to require pension schemes to offer income solutions to employees when they retire, rather than leaving them on their own. This hints at Employer schemes such as Nest and The People’s Pension making Flexi Access Drawdown Drawdown (FAD) available. Currently, employees would need to transfer out in order to have access to FAD; however, the fact remains that Nest has only six funds – and offers no ongoing advice. This leaves plenty of room for our bespoke services during retirement.
There will also be tests to ensure that pension schemes produce value for money, hinting that companies with poorly performing funds will need to ‘pull their socks up’. Exactly how this is to be achieved is not yet clear. Our advice can ensure that clients have access to funds with a good long-term track record.
The claim is that these measures will increase retirement pots by an average of 9% over the course of a person’s working life but, as has already been pointed out, this depends largely on underlying performance which cannot be guaranteed.
There was also mention of DB ‘superfunds’ which are intended to improve DB operation and control. We have to wait and see how this pans out. The main message from the PPF’s Purple Book 2022 is that changes in this area will not alter the fact that in the UK there are still over 5,000 DB schemes with 4.4m deferred members. Any reduction in BOE base rates should increase transfer values and, in turn, trigger a resurgence of interest in DB transfers.
As always, the devil is in the detail – we will keep you informed.
This communication is for informational purposes only and is not intended to constitute, and should not be construed as, investment advice, investment recommendations or investment research. You should seek advice from a professional adviser before embarking on any financial planning activity. Whilst every effort has been made to ensure the information contained in this communication is correct, we are not responsible for any errors or omissions.