Under new reforms from the Government, defined contribution (DC) pension funds and local Government pension scheme will be combined into larger megafunds which ministers argue will make it easier for them to invest in UK assets, boosting growth.
But experts have said this £6,000 figure “is marginal at best” and won’t mean much for savers in reality.
The figures, which come from the final report of the Pensions Investment Review, say that the suggested reforms will drive higher returns for savers, in part by cutting waste in the system.
The £6,000 comes from the impact of consolidation, which the Treasury estimates to deliver at least a 6 per cent reduction in fees which are expenses levied by pension providers to cover the costs of managing and running your scheme.
The Government added the savings will come from increased allocations to productive assets such as infrastructure projects – for example, the funds could be moved from equities into projects like new house building.
By 2030, these schemes could be saving £1bn a year through economies of scale and improved investment strategies.
What does this mean for savers?
The £6,000 is not per year, it’s in your pot overall, and according to Sir Steve, is probably worth under £10 per week on your final pension.
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Sir Steve said: “None of this factors in the costs of some of the other measures which they are proposing which include creating a new process for the consolidation of micro pots which will cost a lot of money to administer, and which will presumably increase pension costs.
Ros Altmann, who was also once pensions minister, said there is no guarantee that bigger funds perform better than smaller ones.
She added: “The costs of merging different schemes should also not be underestimated.”
David Robbins, senior consultant at Willis Towers Watson (WTW), said these are “unavoidably finger-in-the-air numbers when extrapolating over decades and decades”.
If the changes have the desired effect, there would be some benefit for 40-year-olds, for example, he said, just less than a 22-year-old as it does not affect returns in the past.
How much extra would this £6,000 get you in annuity terms?
An annuity converts your savings into an annual pension, giving you a guaranteed income when you retire that will be paid for the rest of your life.
For a healthy person accessing their pension at 66, it works out that the additional £6,000 in someone’s pension pot would mean an extra £31 a month or £393 a year – nearly £4,000 over 10 years, according to calculations by Standard Life.
Standard Life seem more positive about the outcome, saying for some the figure could be “life changing”.
“The consolidation proposals represent a significant moment for UK pensions, but a great deal of work lies ahead to make them happen and in a way that supports better outcomes for pension savers.”
He said: “If they keen the money invested, those individuals would get more. Of course, any boost to income is worthwhile.”
The Treasury have been contacted for comment.
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