The UK Pensions Schemes Act came into force yesterday (29 April) after being granted Royal Assent, in what Pensions Minister, Torsten Bell, described as a “landmark moment” for savers.

The passing into law, confirmed to Pensions Age by the Department for Work and Pensions (DWP), comes just one day after the former Pension Schemes Bill cleared parliament after the House of Lords accepted final amendments introducing new ‘guardrails’ on mandation powers.

As a result of the pushback from the House of Lords and the wider pensions industry, the government’s power to determine how pension schemes invest is now far narrower in scope than first drafted.

Commenting on the passing of the legislation, Bell said: “Today is a landmark moment for the 22 million workers building up a pension pot across the UK. For too long, our pensions system has been fragmented and rarely ensures that people’s savings are working hard enough to support them in retirement.

“The Pensions Schemes Act will change that by creating schemes that drive down costs, deliver higher returns, and give savers the security they deserve.”

In a release, the DWP estimated that the new law will boost the average worker’s pension pot by up to £29,000 by the time they retire.

This, it said, would be achieved through greater investment performance by addressing underperformance and increasing diversification, reducing costs which could be passed onto savers and by investing for longer, ensuring workers’ pension pots work harder, for longer.

The Act will require pension schemes to prove they are delivering Value for Money (VFM), enable the automatic consolidation of small pension pots, and create larger, better-performing funds.

The VFM framework will standardise how value is assessed, leading to transparency and comparability. This, in turn, will drive competition and a long-term focus on value across the defined contribution (DC) pensions sector.

As part of the VFM initiative, pension scheme managers and trustees will need to offer clear default options for turning savings into retirement income, with the aim of giving people who choose this a sustainable income in their retirement.

In addition, the Act will create multi-employer DC ‘megafunds’ of at least £25bn, which the government hopes will drive down costs and enable investment in a wider range of assets, including in UK businesses and infrastructure.

It will also consolidate Local Government Pension Scheme (LGPS) assets into pools managed by Financial Conduct Authority (FCA)-regulated managers, supporting long-term investment in local infrastructure, housing and clean energy across the country.

As part of the legislation, defined benefit (DB) schemes will be provided with greater flexibility to release surplus funds, which it is estimated would unlock around £160bn collectively to support employers and deliver for scheme members.

The Act also paves the way for the upcoming Pensions Commission, which will examine how the UK can ensure future pensioners stay on track for a comfortable retirement. It will make recommendations for change – potentially benefiting millions of people across the UK, the DWP stated.

This article was first published on our sister website, Pensions Age.

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