How pension holders could end up with pots £1,000s bigger
Savers could boost their retirement pots by thousands of pounds under major government reforms that “have the potential to transform workplace pensions”.
The Department for Work and Pensions (DWP) has laid out its workplace pensions roadmap for the next three years, aimed at bettering outcomes for savers.
It comes as the government estimates that, on current trends, those retiring in 2050 will have lower private pension incomes than those retiring in 2026, with millions facing retirement poverty.
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Rachel Vahey, head of public policy at investment platform AJ Bell, said: “The government has set out an ambitious programme of reforms that has the potential to transform workplace pensions, making it easier for people to compare pensions and switch to get a better deal.”
The measures will run alongside the new free online pensions dashboard, which is expected to launch in the 2027/28 tax year.
Vahey added: “Combined with pensions dashboards, these reforms have the potential to create a new generation of more engaged savers.
“For the first time, people will be able to see what pension savings they have built up across different providers, alongside clearer information about how well those pensions are delivering for them.”
League table for workplace pensions
The “centrepiece” of this three-year plan is a Value for Money framework.
Pension savers will be able to see how their workplace pension scheme is performing and the returns it is generating against other pension schemes via a league table.
Schemes will be ranked from red (poor value) to green (outperforming on value) on a range of metrics including investment performance, charges and quality of service.
Schemes not performing well for savers will have to improve or be forced to wind down.
The league table will be rolled out to all workplace pension schemes from 2029.
Torsten Bell, minister for pensions, said: “The stakes are high, when the gap between the best and worst performers could cost a saver with a £10,000 pot over £5,000 across just five years.”
However, Helen Shackelford, partner at consulting firm LCP, said introducing a league table could “constrain innovation”.
She added: “Short-termism in a long-term system may ultimately compress the range of member outcomes and penalise funds that have made strategic decisions with a 20–30 year horizon.”
Creation of pension ‘megafunds’
The government reforms also include plans to consolidate smaller defined contribution (DC) workplace pension schemes which are used for automatic enrolment into ‘megafunds’.
From April 2030, these multi-employer schemes must reach at least £25 billion of assets under management or have at least £10 billion with a growth plan to reach £25 billion by 2035.
The government says these larger funds will improve returns for savers through lower fees, higher returns and a more diversified pool of investments.
‘Guided Retirement’ to provide better outcomes for savers
Under a Guided Retirement framework, pension savers accessing their pots at retirement will be offered default options from 2029.
The idea behind the change is that pension savers who don’t want to take an active role in deciding how to access their pots will still receive a decent stream of income in retirement.
But savers won’t have to accept the default option and they’ll also be able to choose an option more suited to their needs, if they prefer.