Queen’s Speech confirms new pension rules
Most workers now save into a pension thanks to auto-enrolment but as people move between jobs, old pensions often get lost.
Pension Dashboards are meant to help savers keep track of their different pots, which in turn, will make planning for retirement easier.
Confirmation that Dashboards will go ahead was announced during today’s Queen’s Speech, which sets out the laws government wants Parliament to approve.
There has been cross-party support for the introduction of Dashboards, but MPs will have the final vote on whether they will definitely go ahead.
Tom Selby, senior analyst at AJ Bell, said: “Dashboards have the potential to revolutionise retirement engagement in the UK by allowing savers to see all their pensions in one place, but we need to recognise the first versions will be extremely limited.
“Schemes won’t be forced to provide data in the initial phase and total compulsion is expected to take years, meaning people will only see partial information.”
Selby said preventing scammers infiltrating systems should be “of paramount importance” and “there should be no attempt to launch until security can be guaranteed”.
He added that in the long-term, there’s no reason Dashboards couldn’t be expanded to include other financial products such as ISAs.
“The likes of Monzo have shown the way in the banking world, and I expect pensions to follow a similar path in the coming years.”
Proposed legislation allowing for ‘Collective Defined Contribution’ (CDC) schemes was also included in the Queen’s Speech.
Selby said: “Versions of these schemes, which sit somewhere between old-style defined benefit arrangements and more modern DC plans, have been introduced in other countries, to varying degrees of success.
“Royal Mail has pledged to shift its members to a CDC scheme once the rules are in place, although there has been little sign of significant demand from other employers.”
“Communication will be absolutely key to ensuring people understand what they are getting into with CDC.
“While the scheme might target a certain level of pension, this will not be guaranteed, meaning members could see cuts in their benefits even after they have started drawing an income from the fund. Such benefit reductions were experienced in the Netherlands and sparked vociferous protests from those affected.”
Another new rule will give the Pensions Regulator more powers in taking to task employers who may be neglecting their final salary schemes in favour of paying dividends out to shareholders.
“It will help strengthen the protection of employees’ guaranteed pensions, and hopefully cut down on the kind of scandals such as we’ve seen with BHS and Carillion in recent years,” said Tom McPhail, head of pensions policy at Hargeaves Lansdown.
The new deterrents include a criminal offence for bosses who demonstrate ‘wilful or grossly reckless behaviour’ in relation to defined benefit schemes.
Selby said: “While the rhetoric here is tough, what constitutes ‘wilful or grossly reckless behaviour’ has not yet been spelled out. Ultimately it may be the courts that decide how this sanction is applied in the real world.”