The government’s pensions reform agenda could reshape the rewards and benefits landscape, presenting both opportunities and challenges for employers. So, what could this mean for the UK workforce?
The newly announced pensions review presents an opportunity to improve pension adequacy. Likely to be considered during 2025, employers might be asked to increase minimum automatic enrolment (AE) contributions from the current level of 3%. Many in the pensions industry have suggested they should rise by 2 or 3%, gradually, over the next decade. It remains uncertain whether the government will adopt this view. While this might raise costs, it also offers a chance to boost employee satisfaction and retention with more robust retirement benefits.
The chancellor has trained her focus on encouraging wealth creation and is looking at ways to encourage more pension fund investment in UK businesses and infrastructure. With the right regulatory framework and targeted action, pension schemes’ sponsoring employers might see a more dynamic investment environment, with funds playing a larger role in supporting the domestic economy. This could benefit businesses indirectly, though employers will need to ensure compliance with evolving regulations. However, it is essential that pension schemes continue to be allowed to prioritise investments in scheme members’ best interests.
Announced in The King’s Speech, the Pension Schemes Bill could bring new obligations, such as solutions to help employees get good outcomes at retirement. The advancement of the value-for-money framework will work to ensure defined contribution (DC) pensions deliver higher overall returns, benefiting both employers and their workforce. This would make an important shift of focus from costs to performance. Such change would be unlikely to come into force for the next two years.
Addressing the needs of under-pensioned groups is essential. We are hopeful the Employment Bill announced in The King’s Speech will help reclassify gig economy workers so they can start saving automatically into a pension. Secondary legislation will also be needed to lower the age of AE eligibility from 22 to 18 and to begin saving from the first pound of earnings. This is something employers will need to consider within their standard pension offerings. It’s unclear, whether the government will implement these last two measures passed by the Conservative government.
By staying ahead of these potential changes, employers can comply with new regulations while enhancing their benefits packages.
Nigel Peaple is director of policy and advocacy at the Pensions and Lifetime Savings Association (PLSA)
