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BRANAGANS

Accountancy Services Ltd

01709 327 215 | info@branagans.co.uk

July 2025 | Government unveils pension overhaul to boost retirement savings

Millions of people could soon find it easier to keep track of their pensions thanks to the government's new pension schemes bill, which aims to boost returns and merge small pension pots into larger, more efficient funds.

The benefits of combining smaller pension pots can't be underestimated, as typically the costs associated with managing these funds will fall, automatically increasing returns. This is all part of the Government's Plan for Change, which is designed to put more money in people's pockets.

Many workers will often create small pension pots with the various employers they work with, as few people will stay with a single employer for most of their working life - a big change from years gone by. Changing the system to enable these smaller pots to be combined into a single, larger pot that can be monitored more easily and with lower overall fees will go a long way to helping people better understand their overall financial position when they are heading towards retirement.

WHAT WILL THIS MEAN FOR PEOPLE NEARING RETIREMENT?

Anyone approaching retirement will also benefit from "clear default options" for turning their pensions into retirement income, including more secure routes to deciding how they use their pension when the time comes.

This is potentially useful as the Pension Freedom rules which came into effect on April 6, 2015, removed the requirement to buy an annuity with your pension, but the extra choice has made it difficult for some people to know what to do for the best.

The suggestion from Chancellor Rachel Reeves is that all pension schemes should offer a default route to creating an income in retirement. While this would simplify things for people, it may result in some not choosing anything other than the default route, which may not be the best option for them. If you aren't sure that what is the best option for you, either when these planned changes come in or before, then speak to your accountant for advice before you vest your pension.

The Chancellor said: "The Bill is a game changer, delivering bigger pension pots for savers and driving £50 billion of investment directly into the UK economy - putting more money into people's pockets through the Plan for Change. "The Bill will transform the £2 trillion pensions landscape to ensure savers get good returns for each pound they save, and drive investment into the economy, through a suite of measures…"

These measures include:

• Requiring Defined Contribution (DC) schemes to prove they are value for money, to protect savers from getting stuck in underperforming schemes.
• Simplifying retirement choices, with all pension schemes offering default routes to an income in retirement.
• Bringing together small pension pots worth £1,000 or less into one pension scheme that is certified as delivering good value to savers, making pension saving less hassle and more rewarding.
• New rules creating multi-employer DC scheme "megafunds" of at least £25 billion, so that bigger and better pension schemes can drive down costs and invest in a wider range of assets.
• Consolidating and professionalising the Local Government Pension Scheme (LGPS), with assets held in six pools that can invest in local area infrastructure, housing and clean energy.
• Increased flexibility for Defined Benefit (DB) pension schemes to safely release surpluses worth collectively £160 billion, to support employers' investment plans and to benefit scheme members.

Source: Gov.uk

PENSION CHANGES ARE EXPECTED TO ACCELERATE

The Government is trying to accelerate change in the pensions marketplace to ensure people have more money in their pension fund at retirement. The changes are described as "urgent" by Minister for Pensions Torsten Bell.

He said: "Pension saving is a long game, but getting this right is urgent so that millions can look forward to a higher income in retirement.

"The Pension Schemes Bill is part of this Government's significant pension reform agenda. It follows the major consolidation of the UK pension system set out in the Pension Investment Review."

The need for simplification is real, as experts feel that the way pensions work has become too fragmented and too complex.

Rocio Concha, Director of Policy and Advocacy, Which? said: "It's good to see the government taking steps to simplify them and ensure schemes provide value for money. Which? has campaigned for years for the consolidation of small pots, so we are delighted that this Bill is seeking to do just that - a move that will provide greater value for savers and support them to keep track of their pensions.

"Which? looks forward to working with the government to ensure the pensions system is fit for the future."

BOTH DEFINED CONTRIBUTION AND DEFINED BENEFIT SCHEMES COVERED

The two main types of pensions - Defined Benefit (DB) and Defined Contribution (DC) will both be in the sights of the Government's simplification plans. DB pensions are the more traditional schemes, where the amount of pension you receive is based on the amount of salary you were earning when you retired from the company or organisation.

These are much rarer now, and it is much more common for people to be in DC schemes. These are where you pay in a certain amount, which is often matched by your employer, or it may pay in more or less than you do, but the amount you receive at retirement depends on the performance of the underlying pension fund investments over time. The DC pensions are the ones where you have to think about how to take your pension when the time comes, as there are a variety of ways you can currently do this, which is adding to the confusion.

Nausicaa Delfas, Chief Executive, The Pensions Regulator (TPR) said: "The Pension Schemes Bill is a once in a generation opportunity to address unfinished business in the UK pension system. Making sure all schemes are focused on delivering value for money, helping to stop small, and often forgotten pension pots forming, and guiding savers towards the right retirement products for them, will mean savers benefit from a system fit for the future.

"We have long advocated for fewer, larger well-run schemes with the size and skill to deliver better outcomes for savers. As such we are also pleased to see the proposed legislative framework for DB superfunds, providing options and choice in defined benefit consolidation."

The bill will cover a number of other points, and you can find out more about the Government's Pension Investment Review on Gov.uk.

CONTACT US

If you want to find out more about the measures that have been announced, then please get in touch with us on 01709 327 215 or email info@branagans.co.uk and we will explain how the measures might benefit you.

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