Radical new legislation marking the culmination of this Parliament’s pension reform agenda has become law.
A revolution in pension scheme design, which could transform the retirement prospects for millions of younger workers, will now become possible with the passing of the Pension Schemes Act 2015.
The act, which received Her Majesty the Queen’s Royal Assent earlier today, also heralds new rules providing greater clarity for pension savers, as well as protection for those taking advantage of the new pension freedoms after 6 April 2015.
It marks a new era and will pave the way for greater choice for employers in the pensions they offer as well as for savers in how they access their pension savings.
Minister for Pensions Steve Webb said:
The passing of this act marks the culmination of a 5-year pensions revolution under this coalition government.
While for years successive governments simply watched the slow decline of the final salary scheme, we have responded by giving firms new ways of providing their staff with secure pensions.
There is a real appetite from employers to offer high-quality pensions for their staff and the new Defined Ambition pensions made possible by this act will enable a new generation of better, fairer schemes.
The act also protects the new pension freedoms and flexibilities, so people have control of their pension pots, and know it is a criminal offence for scammers to pretend to offer official Pension Wise guidance.
The landmark legislation passed today will create the opportunity for workers to save into plans – known as Defined Ambition – which will offer them a promise about some of the benefits they will receive.
Currently, a growing majority of workers who have a pension pay into Defined Contribution schemes which, while offering many advantages, do not give any guarantees of eventual income.
The Pension Schemes Act will also enable new collective pensions to operate in the UK. Schemes offering collective benefits will be able to pool risks between the members and this can provide greater stability and already operate successfully in other European countries.
These reforms come into effect shortly before ground-breaking new pension freedoms which are due to take effect in April.
The Pension Schemes Act also provides further protection measures for pension savers taking advantage of new flexibilities to access their pension pots from this April, including important new legislation on the new guidance service, Pension Wise.
Economic Secretary to the Treasury Andrea Leadsom said:
Our radical pension reforms are about giving people more choice when they retire.
The government believes that people who have worked hard and saved all their lives should have the freedom to decide how to use their savings and the guidance to help them make good decisions.
Pension Wise empowers and educates people so they can make their own, informed choices about their pension and the legal framework for Pension Wise, including the rigorous standards set by the regulator for the service, comes into force today.
Today a new criminal offence comes into effect which means that people passing themselves off as providing the official Pension Wise service will face a fine or prison. This will help ensure Pension Wise is a brand and service that people trust and to protect people from potential scammers.
Pensions reforms and successes since 2010
The Pension Schemes Act builds on the government’s major pension reforms and successes since 2010.
Protection of the basic State Pension means the rate rises by the highest of growth in earnings, prices or 2.5%.
We have committed to spending £10 billion more on the basic State Pension over this Parliament than would have been the case without our commitment to the triple lock.
Over 5 million people have now been automatically enrolled into a workplace pension – to help millions save for retirement or save more for the first time.
In April 2015, a charge cap on default funds in defined contribution pension schemes will be introduced to ensure workers auto-enrolled into a workplace pension will be able to save with confidence.
Pension freedoms from 6 April 2015
From April 2015, individuals with a defined contribution pension will have the freedom to access their pension as they wish from age 55. The act also provides the legal framework for Pension Wise.
The Pension Schemes Act will allow schemes to offer flexibility without needing to go through the burdensome process of changing their scheme rules. It will also ensure that those with a Defined Benefit pension who want to access their pension flexibly will benefit from regulated financial advice to ensure that they make the right decision.
The Pension Schemes Act
The Pension Schemes Act is designed to make provision about pension schemes, including encouraging arrangements that offer people different levels of confidence in retirement or that involve different ways of sharing or pooling savings risks.
The act also includes important legislation on the new pension freedoms which will give people greater flexibility and help them make informed decisions about what to do with their savings.
The protection measures for pension savers include:
- putting in place the new pension guidance service, Pension Wise, ensuring many individuals can transfer their pension savings if they want to access the new flexibilities
- introducing an important safeguard so that, depending on the form of savings, people may need to obtain independent financial advice before they transfer
Read more about the Pensions Schemes Act on the Parliament website.
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