Pension savers will soon be able to compare the performance of their workplace pension scheme to others – meaning they can switch to a better scheme if they are not happy.
Pension schemes will be placed in a league table based on their investment performance, costs and charges and quality of service, and rated on a traffic light system from red – for poor value – to green –outperforming on value.
The Government says that at the moment, the wide range of performances among different schemes means someone with a £10,000 pot in one of the poorest pensions could be £5,000 worse off after five years than someone with a high-performing one.
The poorest-performing schemes will have to improve or close.
From 2028, the rating system will be introduced for larger schemes, with the changes rolled out to all workplace pension schemes from 2029.
The i Paper spoke to pension experts to understand how savers can use these reforms to boost their pension savings.
How the changes will help you make the most of your pension
Experts say that the system will allow pension savers to see how their workplace scheme is performing and switch to a better one if they are unhappy.
Most employees are now enrolled in a workplace pension scheme automatically and can transfer their savings away if they want, but information on how the scheme is performing can be hard to achieve.
Rachel Vahey, head of public policy at AJ Bell, said based on the league tables, people will be able to quickly learn how their scheme is doing compared to now.
“If you find your pensions are lagging, then switching to get a better deal could make a massive difference to your future retirement.”
To date, it hasn’t been possible to compare value for money across all pension scheme options on a like-for-like basis.
Some experts said pension savers often look at things like fees on pension funds in isolation, but are less aware of how much money their fund is making. The Government says annualised five-year returns for younger savers range from around 5 per cent to 13 per cent across a sample of large pension schemes.
Pete Glancy, head of pension policy at Scottish Widows, said: “Investment returns make a much bigger difference to the size of the pension pot that a worker will retire with.
“What the Government wants to do is compare investment returns after charges have been deducted so that comparisons are made on a combined measure which makes much more sense.”
Glancy added that as well as being able to switch their money themselves, pension savers will benefit if their employers make more informed choices based on how their workplace scheme is performing, and opt to use a different scheme as a result.
How to make the most of your pension now
Though the changes have not come in yet, experts say there are things you can do to ensure you’re getting the best deal from your pension scheme now.
Claire Trott, head of advice at St James’s Place, said the best way to make the most of your workplace pension now is to ensure you are benefitting from what your employer offers.
Under auto-enrolment, employers must pay in 3 per cent of your pensionable pay into retirement savings, with you paying 5 per cent.
Trott says many employers offer “matching”, where it pays more if you also agree to pay more, and that if this is the case it’s worth considering.
She said pension schemes also offer various investment options, and it’s worth seeing if your money might be better in an alternative fund to the default choice.
She added: “Defaults are there as a backstop to ensure the money in your pension doesn’t just sit in cash. You have an option to change your investment preference based on your own needs or values. This can include a social or environmental fund, or you may want to change your level of risk and opt for a more or less risky fund.”
She said this can always be altered in the future. “The main thing is to remember this isn’t a once-and-done choice – you can always make other changes later,” she said.
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