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How the Pension Schemes Act will change pensions

Whether you’ve heard of the Pension Schemes Act or not, the newly passed law will undoubtedly change the way you look at your pensions. Here’s how.

A major win for consumers across the UK was the passage of the Pension Schemes Bill, now officially the Pension Schemes Act. The Act covers a variety of issues, but chief among them is the creation of a Dashboard that will give you crucial digital information on your pensions in one place.

These Dashboards have the potential to significantly improve how you engage with your pension, by providing information about how much you’ve saved, what you might need to save for a comfortable retirement, and to help you make informed decisions about your retirement choices.

Campaigning for change

Which? has led the way in calling for the introduction of Pensions Dashboards since our Better Pensions campaign launched in 2015.

Fast-forward to February 2018, and our Dashboards Report proved instrumental in initially shaping the Government’s thinking, and the original government consultation on the Dashboard relied extensively on the research contained in our report.

Both before and during the Bill’s passage through Parliament, our pensions team worked tirelessly to ensure it contained the best possible outcomes for UK consumers

Listening to our concerns

However, despite this, there were still genuine concerns that: the commercial dashboard would be subject to further delay; financial transactions would be prohibited; and there were even questions about whether the dashboard would be a regulated activity or even display basic information about costs and charges incurred. 

What is clear though, is the government and opposition listened to our concerns, and because of this, Pension Dashboards will now:

📄 Be a regulated activity, protecting consumers from the risks of bad outcomes, whilst giving them the freedom to use the full range of tools available to them through the Dashboard

📄 Display key information, including costs and charges, projected state pension at retirement, and projected retirement income

📄 Be available to consumers without added delay, with the commercial and MaPs Dashboards both being made available to consumers as soon as they are developed, rather than delaying the commercial dashboard for an extra year

We’d like to say thank you to everyone who campaigned with us to make these changes happen and achieve a positive outcome.

How do you feel about the changes? Do you agree that the improvements will change the way we look at our pensions?

Comments

It’s far too early to say how this will all pan out. The Act requires a number of Regulations to be in place before any noticeable change occurs.

The majority of the Act deals with the funding and management of Defined Benefit (i.e. final salary) pension schemes. If you are already a member of such a scheme, you are most likely approaching retirement already. You are unlikely to need or want a Pensions Dashboard, as the Trustees of these schemes must keep their members regularly informed and updated. You can always contact them via your current or past employer if you have any questions about your entitlement or benefits.

Sadly, some of the new regulations may be too late to stop or prevent the predatory practices of certain billionaire retail entrepreneurs (there’s more than one) buying up failing businesses, asset stripping, and selling off the carcass in a pre-packaged administration, leaving behind an underfunded final salary scheme. Pension benefits are not protected on an employee being TUPEd, so this just adds insult to financial injury, even if you are lucky enough to keep your job.

The Pensions Dashboard we might finally see emerging after a lot of foot dragging by Defined Contribution (i.e. money purchase) providers could perhaps help workers with a chequered history of employment keep track of all the small pension pots they have accumulated. But these big projects never deliver on time and 2023 is the earliest possible date.

I am concerned that the Pensions Dashboard will be regarded by many as some kind of bank account summary page. What they may not see or realise is how little pension that sum will provide in retirement – 4% of fund value if lucky, and interest rates and inflation remain under control. A lot of people I suspect will look at their combined fund values of say £50,000 and stop saving for retirement, not understanding that they are looking at a pension in payment of maybe £2,000 per year – hardly enough to buy basic food for one person.

The other thing that may not be evident from the Dashboard is the management fees charged by each and every pension pot provider, that will eat away at your funds over the next 20-40 years until you do retire. This is particularly so where no further contributions are being made. I’m sure the industry will do its best to hide or limit the amount of disclosure provided online. The likelihood is you will retire with a lot less capital than the Dashboard suggests, unless you review your charges and investments regularly.

So well done for getting this far, but too early to celebrate anything tangible yet.

Employees and the self-employed really need to take far more interest in their retirement planning than playing with a phone App when it finally turns up. The days of being feather-bedded by generous final salary pension schemes are over. Welcome to the world of dog-eat-dog self investment and stealthy management charges. And that is the regulated part. Never mind the get-rich-quick-because-you’ve-left-it-too-late schemes and scams that this will facilitate.

Patrick Taylor says:
11 March 2021

Nailed it again Em.

Darren says:
11 March 2021

Sir / Madam,

Complete agreement with ‘Er’ too similar.

Additional to this comment, please be aware that from personal experience (as at this time) My ‘frozen’ DB scheme of eight years is at loss of several thousands from leaving the group. There was little guidance or information from uneducated Trustee’s to complete mismanagement, with basic information regarding said scheme. Hence any information provided and lawfully endorsed with current changes, updates etc, is helping others from my similar deficit and challenge through court.

To iterate in layman’s terms my scheme from eight years ago as a deficit of approx 24% in value; hopefully changes introduced would allow direct observation.

In fact, ‘horse and bolted’ seems to be prevailant today, however future DC schemes or all others as such involving, Trustees are still at risk!

https://www.which.co.uk/news/2021/04/five-tips-to-boost-your-state-pension-payments/
This points out that you can choose to defer your state pension and increase its payout.
”Someone who defers receiving the state pension for 12 months will get a 5.8% boost to their income for the rest of their lives. This is equivalent to around £10.41 a week for someone entitled to the full level of £179.60 a week in the current tax year.” But it is likely to take 17 years (so you’ll be 83) to make up what you lose by not taking the first year.

What it does not say is that, as the state pension is subject to income tax, if your other income that allows you to defer is earned, you may well pay less income tax by not taking your pension initially. That could make deferring more attractive.