The Impact of the Pension Review Delay

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A delay in the government’s highly anticipated pension review has been branded a threat to people’s financial futures, leading to more pensioners facing a cost-of-living crisis in later life.

Labour pension changes played a key role in their election manifesto, followed by an announcement of the government’s Pension Schemes Bill in the King’s Speech on 17th July 2024.

The promised pensions review, which was aimed at making “every part of Britain better off”, appears to have been put on the back burner, according to the latest government pension news. The Treasury has reportedly postponed its retirement market review that would have focused on boosting auto-enrolment pension contributions.

Chancellor Rachel Reeves has “delayed indefinitely” the next stage of the far-reaching pension reform plans, according to the Financial Times.

What were the objectives of the pension review?

The pensions investment review was launched in August 2024 with a view to increasing saver returns, boosting investment and tackling waste in the system. The government initiative was aimed at reforming the whole pensions system, encouraging more people to save for their future and improving auto-enrolment figures.

In November 2024, an interim report was published to mark the initiative’s progress. Reeves outlined plans to create megafunds to back infrastructure projects by merging 86 local government pension schemes. The following phase was expected to help people save for their retirement and address auto-enrolment issues.

However, the latest UK pension news suggests that it has been postponed to “avoid pressure on businesses” due to the higher national insurance contributions they would be facing.

How does the delay impact people?

The delay in the pension review negatively impacts retirement savings and the future of auto-enrolment, according to the Association of British Insurers’ director of savings policy Yvonne Braun, who feels it's vital to address the current “pension savings crisis” in the UK.

The review must look into how pensions are invested, the state pension age and consumer decision making to “prevent future pensioner poverty”, says Braun, who wants the government to provide a “clear path” enabling businesses and individuals to plan with some certainty.

Due to the indefinite postponement, plans to merge local government pension schemes into larger megafunds seem unlikely to proceed in the foreseeable future.

Governments over the years have looked for new ways that pension schemes can support the UK economy and it was hoped the Labour manifesto would make some real steps forward, but industry experts fear the U-turn means little will be done to overcome barriers and increase pension fund investment.

What could a delay mean for your money?

Reports had suggested the pension megafunds could unlock around £80 billion of investments to support new businesses and infrastructure projects. The second stage of the review was to have focused on setting a timetable for boosting retirement savings for self-employed people and scaling up minimum contributions for automatic enrolment.

Pensions experts had expected the campaign to include implementing the 2017 auto-enrolment recommendations, including removing the annual salary offset of £6,240 so that pension contributions could be made from the first money earned.

Head of pensions at Aegon, Kate Smith, said she had anticipated the introduction of higher mandated contributions of 12% of salary, rather than the current 8% rate, during the next ten years. A study by Scottish Widows revealed almost 30% of adults had “no idea” of what they would need in retirement, while 19% didn’t know how much they and their employer were putting into the pension pot every month.

Smith describes delaying phase two of the pensions review as “damaging many people’s financial futures”, leaving millions of UK pensioners at a greater risk of suffering a financial crisis when they retire. In addition, potential cuts to retirement savings incentives have led to further uncertainty over how pensions are taxed, resulting in a lack of trust in pensions.

Investment services platform AJ Bell is campaigning for the government to introduce a “pensions tax lock”, committing to leave tax relief and tax-free cash entitlements as they are in the longer term, as pushing back the “difficult decisions” will “store up problems for the future”.

AJ Bell’s public policy director Tom Selby is urging Labour to “come clean” on how it will tackle pensions inadequacy, which he describes as a “potential ticking time bomb” if unaddressed.

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