Labour has unveiled ambitious plans set to impact personal finances in the King’s Speech today, including a new Pension Schemes Bill that could see around 15 million savers reaping the benefits. The government claims this move will boost the average person’s pension pot by over £11,000 by the time they hit retirement.
Key to the changes to pensions is a way for small pension pots to be automatically consolidated, ensuring savers don’t lose track of their funds. The government is considering three primary strategies for the consolidation of small pension pots. These include creating a ‘pension passport’ that would accompany employees from one job to another, establishing a single default consolidator to manage all individual pension pots, or distributing small pots across several consolidators.
Tom Selby, director of public policy at AJ Bell, commented on the initiative: “The government is intent on pushing forward with greater consolidation of pension schemes, in part to improve the value members receive and in part to help deliver greater levels of investment into UK Plc. For individuals, there can also be benefits to taking control and combining your retirement pots, including potentially lower charges, more choice and easier administration.”
READ MORE:What the King’s Speech will mean for London as Sadiq Khan set for more powers
The Pensions Schemes Bill also includes measures to ensure that defined contribution pensions offer value for money through a standardised test, with guidelines provided by the Financial Conduct Authority (FCA). The changes announced today include a mandate for pension schemes to offer retirement products, including default investment options, reports the Mirror.
A couple of other significant changes to pensions include an update on defining “terminal illness” to allow eligible savers to receive a lump sum payment sooner and bolstering the power of the Pensions Ombudsman to help reduce costs. However, absent from the Pensions Schemes Bill was any mention of adjusting the age of auto-enrolment.
Auto-enrolment is a system where you’re automatically included in your employer’s workplace pension. Currently, you must be between 22 and the state pension age, and earn over £10,000, to be legally opted in. The anticipated modifications to the scheme involve workers being automatically enrolled when they reach 18 years old.
The lower earnings limit, which is the minimum amount of earnings where you and your employer are obliged to pay contributions, is being scrapped. This threshold is currently £6,240.
Tom Selby commented: “The legislation for these changes is already in place but the big question is when will it be put into practice? By removing the lower earnings band, savers will benefit from an extra £500 a year into their pension, which would make a big difference over the course of a person’s lifetime.”
Elsewhere, the Employments Rights Bill is set to overhaul working practices, which could see a financial boost for many. The ambitious bill plans to introduce a ‘genuine living wage’ that takes into account the true cost of living, whilst zero-hour contracts and ‘fire and rehire’ practices will be banned. The landmark legislation also brings good news for families, as parental leave will be made available from day one of employment, along with sick pay and protection from unfair dismissal.
Furthermore, a Fair Pay Agreement is being introduced in the adult social care sector and the School Support Staff Negotiating Body will be reintroduced. Finally, flexible working will be the legal default for all workers.
Want more from MyLondon? Sign up to our daily newsletters for all the latest and greatest from across London here.
