On 4 July, the UK electorate voted Keir Starmer’s Labour Party into power with a landslide majority, securing 412 seats in parliament.
Since taking the reins, Labour has been establishing itself as the party of “wealth creation”. As part of this mission, it has already proposed a Pension Schemes Bill that aims to make retirement investments key to boosting the UK economy.
Plus, its subsequent landmark pensions review could be a sign of further change for those in or approaching retirement.
So, how will Labour’s retirement policies affect your future? Read on to find out what you need to know.
Labour’s Pension Schemes Bill could boost the average pension pot by £11,000
At the state opening of parliament on 17 July 2024, the King’s Speech set out the new government’s intention to introduce a Pension Schemes Bill legislating on several areas of pension policy.
Although it has not yet passed, the bill aims to:
- Consolidate small pension pots
- Test the value for money of schemes
- Offer new retirement solutions
- Remove the requirement for courts to enforce decisions by The Pension Ombudsman (TPO).
According to FTAdviser, the bill aims to add £11,000 or more to the average pension saver’s pot.
Here are two key principles laid out in the Pension Schemes Bill and what they could mean for you.
1. New rules aim to make it easier to find “lost” pension pots
The Bill will include measures designed to automatically consolidate small defined contribution (DC) pension pots of less than £1,000. This move is set to help savers keep track of their pensions and reduce the number of loss-making pots that providers must manage.
However, even if this bill passes, it may still be wise to track down lost pensions yourself. If your lost pots are worth more than £1,000, they may not be automatically folded into this system. Research from PensionBee reveals that at least 4.8 million pension pots were considered to be “lost” among the UK population in 2023. Furthermore, nearly 1 in 10 workers believe they could have lost a pension pot worth more than £10,000.
One way of tracing old pensions yourself is using the government’s Pension Tracing Service or speak to your financial planner for advice on your retirement plans.
2. The “value for money framework” measures the value that pension schemes offer savers
The bill’s “value for money framework” aims to ensure as many people as possible are gaining value from their pension scheme. It will be used by pension providers to deliver more transparency to pension investors on how their schemes are performing.
To determine the level of value they offer, schemes will be compared using metrics that demonstrate overall value – not just costs, but also customer service and investment performance.
They will be judged by a traffic light system that will test their value:
- Green ratings represent value for money
- Amber ratings mean that the regulators believe the pension scheme may improve within a reasonable period
- Red ratings mean the regulator doesn’t believe the scheme offers value and won’t within a reasonable period.
The framework itself looks to help drive better long-term value for retirees.
The Financial Conduct Authority (FCA) said that the framework “should lead to better value pensions, without savers themselves having to take action”. If you’re approaching retirement or already drawing from your pension, the bill’s value for money framework may allow your pension to grow more successfully over time.
Labour’s landmark pensions review may bring about more reforms
On 22 July the chancellor announced the first phase of the landmark pensions review as part of Labour’s mission to “boost growth” and offer value for money from pension schemes.
The review will look at how to unlock the investment potential of the £360 billion Local Government Pensions Scheme, which manages the savings of those working to deliver vital local services. According to Reeves, the review also aims to tackle the £2 billion that is currently being spent on fees.
Led by pensions minister Emma Reynolds, the first stage of the review will focus on promoting productive investments through scheme consolidation and the encouragement of broader investment strategies. It will look for ways to increase DC schemes’ investment into productive assets, with the aim of helping savers build up more valuable pension pots and yield more reliable investment returns.
The second stage will concentrate on improving pension outcomes and fostering increased investment in UK markets. This phase will explore ways to maximise returns for future retirees, including the reforms to automatic enrolment.
The changes in question would see the minimum age for auto-enrolment lowered from 22 to 18, while the minimum 8% contribution will be based on an employee’s earnings from the first £1, rather than income earned over the current £6,240 threshold.
These reforms imply that employees could gain more from employer contributions, although they’ll also have to pay a little extra themselves. Those joining the workforce at 18 would also benefit from pension contributions over an extra four years, which could provide an early boost to future compound growth.
We’re still in the very early days of the new Labour government, and it’s too soon to know precisely what the party will introduce over the next five years.
Pensions already play an important role in supporting UK economic growth. With the new rules, your pensions could gain greater value and if you’d like to find out more, we’re here to help.
Get in touch
If you wish to speak to a professional about any upcoming pension reforms and how they might affect your financial plan, please get in touch to find out how our team of VouchedFor Top Rated planners could help today.
Please note
This article is for general information only and does not constitute advice. The information is aimed at retail clients only.
A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future performance.
The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates, and tax legislation may change in subsequent Finance Acts.
Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.
The value of your investments (and any income from them) 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.
Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.