A new pensions bill has been introduced, which could affect your existing pensions.
WHY HAS A NEW PENSIONS BILL BEEN INTRODUCED?
Pension legislation is almost a staple of parliamentary business. If it is not the Chancellor tweaking the tax rules, it is the Department for Work and Pensions (DWP) revamping the framework of private or state pension arrangements. In June, it was the turn of the DWP to introduce a 114-page bill which, like many bills these days, left most of the fine detail to future regulations.
PENSION CONSOLIDATION: THE RISE OF MEGAFUNDS
The latest Bill heralds some far-ranging reforms that could change your existing pension arrangements:
The government wants to see a major shrinkage in the number of defined contribution (DC) funds into which most employer and employee contributions now flow. To achieve this, the bill requires, with limited exceptions, that the main default investment fund of multi-employer schemes have a value of at least £25 billion by 2030. That goal implies that many existing schemes will be merged to form ‘megafunds’, bringing the UK in line with Australian practice.
There are similar provisions (without the £25 billion threshold) to consolidate the default funds of contract-based schemes (e.g., group personal pensions).
WHAT HAPPENS TO SMALL PENSION POTS?
One of the problems created by the success of automatic enrolment in workplace pensions is that job-changers can end up with a ragbag of small pension pots, which are not cost-efficient for employees or pension providers. The Bill gives the government the power to consolidate small DC pension pots of up to £1,000 into a single scheme certified to offer good value. However, full implementation is unlikely until after 2030, once the megafunds market is established.
A PUSH TOWARD PRIVATE MARKET INVESTMENTS
One of the justifications for the creation of megafunds is that their size will permit investment in a wider range of assets, including specialist private markets such as venture capital, infrastructure, property and private credit. These are all areas where the government wants to stimulate UK investment but lacks the finances to do so directly. The Bill gives the government a reserve power to require megafunds to invest a minimum amount in these specialist areas. Background papers show the minimum is currently planned to be 10%, of which at least half must be in the UK.
These changes will take their time to work through, but by the early 2030s your pension arrangements could be very different from today.
DISCLAIMER
The value of your investment and any income from it can go down as well as up and you may not get back the full amount you invested.
Past performance is not a reliable indicator of future performance.
