Are you in line for a £29k pension boost? Government plans could leave millions better off

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Workers on an average salary who save into a pension could be £29,000 better off by the time they retire under government plans to reform Britain’s retirement savings system.

The figure is the estimated individual impact on 20 million savers’ pension pots through a series of government reforms included in the Pension Schemes Bill, which returns to Parliament for its second reading today (7 July).

Measures in the Bill mean that an average man at the start of their career earning just over £37,000 could see up to £31,000 more in their retirement fund by the time they retire.

An average woman, who earns just under £32,000 full-time, could see £26,000 more in their retirement fund, according to government calculations.

The boost to pension savings is predicted to come from greater investment performance through addressing underperformance and increasing diversification in defined contribution pension funds, reducing the costs of saving for retirement which could be passed onto savers and by investing for longer.

Under the Pension Schemes Bill, small pension pots worth £1,000 or less will be brought into one pension scheme that is certified as delivering good value to savers. At present many people struggle to keep track of multiple small pensions as they move jobs and can pay high fees as a result.

In future pension schemes will also need to prove they are value for money, helping savers understand whether their scheme is giving them good returns and protecting them from getting stuck in underperforming schemes for years on end.

These measures in the Pensions Scheme Bill will also lay the foundation for the upcoming Pensions Review. This will examine ways to get “a fair and sustainable pensions system”, the government said, supporting growth and putting more money into people’s pockets.

The upcoming Pensions Review will look at ways to make sure people are saving enough for retirement and to ensure underserved groups, like lower income workers, don’t miss out on the benefits arising from the measures in the Pension Schemes Bill, the government said. More details are expected in the next Mansion House speech on 15 July.

Torsten Bell, minister for Pensions, said: “We’re ramping up the pace of pension reform, to ensure that people’s pension savings works as hard for them as they worked to save.

“The measures in our Pension Schemes Bill will drive costs down and returns up on workers’ retirement savings – putting more money in people’s pockets to the tune of up to £29,000 for an average earner and delivering on our Plan for Change.”

The government had previously announced workers could be up to £6,000 better off from new rules in the Bill creating “megafunds” – large pension schemes of at least £25 billion – so that bigger and better pension schemes can drive down costs and invest in a wider range of assets, which she announced in her maiden Mansion House speech last year.

Other measures include simplifying retirement choices, with all pension schemes offering default routes to an income in retirement. Plus allowing defined benefit (DB) pension schemes to invest a collective £160 billion in surplus they are holding, for the benefit of pension savers.

Zoe Alexander, director of policy and advocacy for the Pensions and Lifetime SAvings Association said: “The introduction of the Pension Schemes Bill is a significant milestone, bringing forward necessary legislation to enact important reforms that have the full backing of the pensions industry.

“This includes small pots consolidation, the Value for Money regime, decumulation options and changes to give DB funds more options for securing member benefits over the long-term.

“Once fully implemented, these measures should reduce the cost of administering pensions, remove complexity for savers and help ensure schemes are maximising the value they provide members.”