Pension Reforms: What Can You Do to Prepare?
The Government's new Pension Schemes Bill, currently before Parliament, introduces wide-reaching reforms aimed at improving outcomes for pension savers. These changes will not only affect how pensions are administered but also impact scheme selection, cost management, and employee engagement over the long term.
Figures released last week suggest that the average worker on an average salary saving into a pension pot over their working life could benefit by up to £29,000 when they retire.
Here are two of the measures that could particularly affect small employers.
1. Automatic Consolidation of Small Pension Pots
Small pension pots under £1,000, often created when employees change jobs, will now be automatically consolidated into large, authorised schemes that have been certified as delivering good value.
This change will reduce the administrative work involved in holding and reporting on multiple inactive pots. This could have an indirect benefit to employers too.
2. Schemes Will Need to Prove They Are Value for Money
Pension schemes will need to meet new regulatory standards to prove they offer long-term value, not just low charges. This will help protect savers from getting stuck in underperforming schemes. The intention is to help employees get the best possible retirement outcomes.
As an employer, you will need to make sure the default pension scheme you use is meeting these standards. Failing to do so will run the risk of being required to switch schemes.
In addition, a poorly performing scheme could affect the value of the benefits package you offer and might lead to losing existing or potential employees. What Can You Do to Prepare?
- It may be worth speaking to your pension adviser so that they can provide you with specific advice on the pension scheme you use and its value.
- As the value-for-money requirements become clear, review your pension provider to ensure they’re on course to meet the requirements.
- Employees may have questions about how the changes may affect their pension, so be ready to communicate with them early and provide support where needed.
- These changes may create an opportunity to re-evaluate how your workplace pension supports retention and financial security for your workforce.
By staying ahead of these changes now, you can ensure your business continues to provide high-quality, compliant pension arrangements that support your employees' long-term financial wellbeing.
See: https://www.gov.uk/government/news/workers-in-line-for-29000-boost-thanks-to-landmark-pensions-bill
