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Sir Keir Starmer has presented a bill aimed at giving more than 15 million Britons a boost to their pension savings, as the Labour prime minister builds on pension reforms launched under the last Conservative government.
The radical measures announced in the king’s speech on Wednesday would seek to boost returns for pension savers through greater mutualisation of pension schemes and “value for money” tests to weed out the worst-performing funds.
Ministers are presenting about half of the 40 bills presented in the speech, which marks the official opening of Parliament, as laws aimed at stimulating economic growth, a theme that has dominated the general election campaign.
The government estimates that the new pensions measures, which would continue reforms introduced under previous Conservative administrations, could increase the value of the average worker’s savings by around 9% – or £11,000 – over their career. Around 15 million people are saving in private sector pensions, the government says.
But the pension bill contains no proposal to increase minimum pension contributions for millions of workers, a change that unions and industry had called for during the election campaign.
Sir Steve Webb, a partner at actuarial firm LCP and a former Liberal Democrat pensions minister, said almost all the measures in the bill had been proposed by the Conservatives.
“We don’t really see the new government intervening on this issue,” he said.
Key plans include ensuring that small pension accounts are automatically consolidated into one place, helping savers track their retirement funds and reducing costs for providers managing smaller, loss-making funds.
The bill would also introduce a “value for money” test for defined contribution schemes, where members have no certainty about the income they will receive in retirement.
The test would aim to eliminate the worst-performing funds from the market, similar to developments seen in other major pension markets, including Australia.
To maximise returns on savings, the bill would seek to ensure that schemes offer specific products that are likely to generate returns, rather than simply serving as savings pots.
Ministers hope the change will improve outcomes for savers, while ensuring money is invested in funds for longer periods and potentially unlocking some of the £158bn of assets held by these schemes to boost economic growth.
The government also plans to implement measures to expand the market for commercial pension “super funds”, which would give employers more options to exit traditional defined benefit pension schemes if they struggle to support them.
The reform could help consolidate the £1.4 trillion defined benefit pension market, where pensions have traditionally been more expensive for employers because they promise guaranteed retirement benefits based on salary and length of service.
Starmer does not support the Tony Blair Institute for Global Change’s proposal to expand the remit of the Pension Protection Fund.
The think tank founded by the former Labour prime minister had argued that Britain’s £32bn pension system should be allowed to support company schemes that have not failed, with its wider pool of assets potentially available for UK investment.
Webb said he “expected a nod in that direction.”
The government also said it would seek to reinstate the Pensions Ombudsman as a “competent tribunal”, meaning individuals would not need to go to court to recover overpayments, easing pressure on the justice system.
But the bill does not include any measures to increase the minimum contributions that workers and employers are required to pay into company pension plans, which currently stand at 8% of workers’ pensionable wages.
The Trades Union Congress, the umbrella body of the British labour movement, had been pressuring Labour during the election campaign to come up with a plan to increase membership fees to at least 15%.
Andy Briggs, chief executive of Phoenix Group, the UK’s largest pensions company, said: “The main lever we can pull to ensure savings adequacy is to increase minimum contributions.”
