Jen Paice

And one which will catch the eye of many of us considering our future finances is the pledge to boost a typical pension pot by £11,000 or more under the new Pension Schemes Bill.

The government aims to do this through a number of measures designed to help people get better returns from their pension and stay more engaged with their retirement pot. These include a new system to automatically combine small pension pots in one place, which it is hoped will reduce the number of people losing track of their different pensions over time.

Research shows that almost one in 10 workers think they have “lost” a pension pot worth more than £10,000, with over £50 billion at risk of being misplaced altogether in forgotten pension accounts.

With workers typically switching jobs more frequently these days, which leads to people accumulating more pension pots across their career, this problem will only get worse.

For those retirement savers who still have a final salary pension, the government plans to consolidate the defined benefit (DB) schemes, which provide this type of guaranteed income for life, into new “superfunds”. This should avoid a situation where savers could potentially lose some of their retirement income if their former employer goes out of business.

There is also a focus on holding pension schemes to account, including a new requirement for schemes to demonstrate how they offer “value for money” to retirement savers. For the first time, pension scheme trustees (who oversee pension schemes) will have to offer retirement income products to savers and guide them on which of these are most suitable to them.

By offering these products, the aim is to keep people invested for longer, allowing more time for their pension pot to potentially grow.

Other measures include a change to the definition of a “terminal illness” so that eligible savers can receive a lump sum payment earlier. And the Pensions Ombudsman, the independent organisation established by law to handle pension complaints, will also be given increased powers.

Technically speaking, none of these changes are new as such, having already been initiated by the previous government. Regardless, it is good to see that this legislation has not been forgotten about.

Although not mentioned in the Bill, ongoing reforms to create Pensions Dashboards are currently behind schedule. But when these are hopefully finalised, the dashboards will be a major step towards fixing issues around lost pensions by offering people access to all their pensions information online, securely, in one place.

In a previous article for The Herald, we also looked at separate early-stage proposals from the former government to introduce a pension “pot for life”, which would be another potentially radical move to stop people losing track of their pension. A pension “pot for life” would give people the chance to have just one workplace pension which essentially moves with them as they change jobs, instead of multiple smaller pots spread around with previous employers.

The government has launched a full review of pensions this week, which experts believe could lead to a bigger shake-up of how our pensions work.

In the meantime, amid all these changes, it is important to keep in mind that the growth of a pension depends on the performance of the investments held in it. What is more certain is how vital it is to keep on top of your pension now that people are typically living longer and will therefore require more to sustain them in retirement.

Jen Paice is CEO of Aberdein Considine Wealth. This article first appeared in The Herald on 23 July 2024.