Enhanced Retirement Benefits: Labour's New Policies to Increase Pensions to £29,000 for Workers
The UK Government has announced significant pension reforms aimed at enhancing workers' retirement savings, driving down costs, and improving returns for both defined contribution (DC) and defined benefit (DB) pension schemes. The reforms, outlined in the Pension Schemes Bill 2025, form part of the Government’s "Plan for Change" to improve pension adequacy and sustainability.
Key aspects of the reforms include:
1. **Creation of multi-employer DC "megafunds"** with a minimum value of £25 billion, consolidating pension assets to enable larger funds to negotiate lower costs and access a wider range of investments. This could potentially boost retirement savings for workers.
2. **Accelerated consolidation of small and large DC pension pots** to improve administrative efficiency and reduce unnecessary charges, helping savers retain more of their retirement money.
3. **Introduction of a statutory "Value for Money" (VFM) framework** for occupational pension schemes. This framework will require schemes to demonstrate good returns relative to costs, aiming to improve net outcomes for savers.
4. **New rules permitting DB pension scheme trustees** to pay surpluses back to sponsoring employers while schemes are ongoing. This move could unlock roughly £160 billion in surplus funds, supporting employers' investment plans and benefiting scheme members through safer management of finances.
5. **Simplification of retirement choices** by requiring schemes to offer default options for converting pension pots into retirement income. This step aims to help workers make better-informed decisions about their retirement.
6. **Future-proofing public sector schemes like the Local Government Pension Scheme (LGPS)** by consolidating its £400 billion in assets into a small number of expert-managed pools. These pools can invest strategically in local infrastructure, housing, and clean energy, potentially yielding better long-term returns for members.
These reforms are expected to put more money in workers' pockets, with estimates suggesting up to a £29,000 boost for an average earner's retirement pot over time. The reforms also aim to remove barriers to long-term investment and strengthen governance and security of pension schemes.
The changes will be implemented gradually between 2026 and 2030, following Royal Assent expected in 2026. Millions of pensioners could potentially benefit from these reforms as they face a "stealth tax" due to their state pension exceeding the personal allowance limit for income tax, currently set at £12,570 and not expected to increase until 2028.
In summary, the Bill intends to reform pension scheme structures, improve efficiency and value for money, and increase options and security for pension savers—ultimately making retirement savings grow more effectively.
- The creation of multi-employer defined contribution (DC) "megafunds" could potentially boost personal-finance for workers by enabling larger funds to negotiate lower costs and access a wider range of investments.
- The new rules permitting defined benefit (DB) pension scheme trustees to pay surpluses back to sponsoring employers could benefit both employers and scheme members, as it could unlock roughly £160 billion in surplus funds and support employers' investment plans through safer management of finances.
