Workers will soon be able to see whether their pension is among the UK's best performers or languishing at the bottom of the table under the biggest shake-up of private retirement savings in a generation.
The Government has unveiled a timetable for landmark pension reforms that will, for the first time, require workplace pension schemes to publish how they compare against rivals using a traffic-light style performance framework.
Ministers say the reforms could transform retirement outcomes for millions of savers, with the average worker expected to be £29,000 better off by retirement once the wider package of reforms is fully implemented.
The changes are designed to expose poor-performing pension schemes, with those delivering weak returns facing pressure to improve or risk being shut down altogether.
Pension schemes will be rated
At the heart of the reforms is a new Value for Money framework, which will assess pension schemes on three key measures:
- Investment performance
- Costs and charges
- Quality of customer service
Schemes will effectively receive a rating ranging from red for poor value through to green for the strongest performers, allowing savers to compare whether their pension is delivering competitive returns.
Where schemes consistently fail, regulators will be able to issue compliance notices, levy fines or ultimately force schemes to wind up.
Millions could be losing thousands without realising
The Government says the reforms are needed because of huge differences in investment performance across workplace pensions.
Analysis suggests someone with a £10,000 pension pot could end up with more than £5,000 less after five years simply because they were enrolled in one of the UK's weakest-performing schemes rather than one of the strongest.
Pensions Minister Torsten Bell said workers deserved to know whether their pension provider was delivering value.
He said: "For the first time, we're making sure savers can see whether they are getting a good deal from the pension they're saving into."
He added: "We can't have people working hard to earn the money they save towards retirement, only to have those funds sitting in schemes that aren't working just as hard on their behalf."
When will the changes happen?
The reforms will be introduced in stages.
Large workplace pension schemes, including Master Trusts and major employer schemes, will begin publishing Value for Money assessments from 2028.
The framework will then expand to cover all workplace pension schemes from 2029.
Alongside the ratings, ministers also want fewer, larger pension funds capable of investing more efficiently and generating stronger long-term returns.
From April 2030, automatic-enrolment pension schemes will generally need at least £25 billion in assets, or have a credible plan to reach that level by 2035.
New retirement defaults planned
The reforms also include plans to introduce default retirement income products, designed to make it easier for people reaching retirement to turn their pension savings into a regular income.
Rather than navigating complex financial decisions alone, retirees would automatically be guided into suitable retirement options, while still retaining the freedom to choose alternatives if they wish.
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The Financial Conduct Authority said the reforms would put savers first.
Deputy chief executive Sarah Pritchard said: "This framework puts savers first. For the first time, it creates a consistent way to compare value across workplace pensions, bringing transparency to the outcomes that really matter."
The Pensions Regulator also welcomed the changes, saying they would bring greater transparency and accountability across the industry.
