Here’s how much more money you are expected to earn under the UK’s new pension scheme
The government has announced major plans for how pensions are managed in the UK, which will allow millions of workers to retire with bigger pension pots.
This will be done through reforms set to be introduced through the Pension Schemes Bill, the Treasury said in a statement on Thursday (29 May).
This will mean all multi-employer Defined-Contribution pension schemes and Local Government Pension Scheme pools operate at megafund level, managing at least £25 billion in assets by 2030.
Evidence from Australia and Canada shows that this size allows pension funds to invest in big infrastructure projects and private businesses, boosting the economy while potentially driving higher returns for savers, Treasury said.
It is also expected that these changes will drive more investment directly into the UK economy for new homes and promising scale-up businesses, with over £50 billion secured through the recent voluntary commitment from pension funds to invest 5% of assets in the UK and new local investment targets for Local Government Pension Scheme authorities.
This tackles the gradual decline in domestic investment from UK pension funds, where around 20% of Defined Contribution assets are currently invested compared to over 50% in 2012, the Treasury said.
How will it impact your pension?
These reforms will drive higher returns for savers, in part by cutting waste in the system. By 2030 these schemes could be saving £1 billion a year through economies of scale and improved investment strategies.
As a result, an average earner who saves over their career could see a £6,000 boost to their Defined Contribution pension pot at retirement through the creation of megafunds, with even better returns expected to be generated through changes in the upcoming Pension Schemes Bill, Treasury said.
“The untapped potential of the £392 billion Local Government Pension Scheme is enormous. Through these reforms we will make sure it drives growth and opportunities in communities across the country for years to come – delivering on our Plan for Change,” said Deputy Prime Minister Angela Rayner.
Multi-employer defined contribution pension schemes will be required to operate at megafund level, managing £25 billion or more in assets, and the full investment might of the £392 billion Local Government Pension Scheme (LGPS) will be unleashed by consolidating assets currently split over 86 administering authorities into just 6 pools.
Defined Contribution schemes will be given more freedom through legislation to move savers into better-performing funds, enabling bulk transfer of assets into the megafunds while ensuring savers’ interests are always protected. Schemes worth over £10 billion that are unable to reach the minimum size requirement by the end of the decade will be allowed to continue operating, as long as they can demonstrate a clear plan to reach £25 billion by 2035.
More than 50 scale-up businesses have signed a joint letter to the Chancellor welcoming the reforms as a ‘significant milestone in ensuring British institutions back British businesses at the scale required to generate growth, employment and wealth.’
