DWP update as pensions to 'jump up by £29,000'

Workers stand to gain up to £29,000 extra in their pension pots under sweeping reforms designed to end the scourge of small, forgotten pensions and push up investment returns.

The landmark Pension Schemes Bill - returning to Parliament today - is set to overhaul retirement saving, with a raft of measures backed by the pensions industry and aimed at driving down costs while boosting long-term returns.

The Government claims an average earner could see a dramatic increase in their pension savings by the time they retire thanks to a package of changes including the consolidation of small pension pots, tighter rules on value for money, and the creation of larger, more powerful pension funds.

Pensions Minister Torsten Bell said: "We're ramping up the pace of pension reform, to ensure that people's pension savings works as hard for them as they worked to save.

"The measures in our Pension Schemes Bill will drive costs down and returns up on workers' retirement savings - putting more money in people's pockets to the tune of up to £29,000 for an average earner and delivering on our Plan for Change."

One key measure will see small pension pots - those worth under £1,000 - automatically merged into larger schemes. This will make it easier for workers to manage their savings and reduce the likelihood of funds being eaten away by fees.

The Bill will also introduce tough new rules requiring pension schemes to prove they offer 'value for money', helping savers avoid poor-performing plans that deliver disappointing returns over time.

Zoe Alexander, Director of Policy and Advocacy at the Pensions and Lifetime Savings Association, said: "The introduction of the Pension Schemes Bill is a significant milestone, bringing forward necessary legislation to enact important reforms that have the full backing of the pensions industry.

"This includes small pots consolidation, the Value for Money regime, decumulation options and changes to give DB funds more options for securing member benefits over the long-term.

"Once fully implemented, these measures should reduce the cost of administering pensions, remove complexity for savers and help ensure schemes are maximising the value they provide members."

Other major reforms include the creation of huge new workplace 'megafunds', worth at least £25 billion, to increase investment power and allow access to a broader range of assets.

There will also be new default retirement options aimed at helping people turn their pension pots into a regular income more easily.

Meanwhile, local government pension assets worth £400 billion are to be consolidated into a small number of expert-run pools with a remit to invest in infrastructure, housing and clean energy.

Jim McMahon OBE, Minister for Local Government and English Devolution, said: "This Bill will ensure the Local Government Pension Scheme is fit for the future and harness its full potential, with assets due to reach £1 trillion by 2040, and will strengthen investment in local communities to accelerate growth as part of our Plan for Change."

The legislation also provides more flexibility for defined benefit schemes - the traditional 'gold standard' pensions - to release part of a £160 billion surplus to support employers and members.

The Department for Work and Pensions estimates that a male full-time worker starting out today could see an extra £31,000 in their pension by the time they retire, while a woman on average earnings could gain £26,000 more.

Officials stress that these figures are based on long-term projections including improved investment performance, lower charges and more efficient pension administration.

The sweeping changes form part of a wider drive to ensure Britain's pensions system is 'fit for the future', as the government looks to unlock billions for UK growth while making retirement saving work better for millions.