Millions of Britons could miss out on an £11,000 boost to their pension savings after Labour delayed the second phase of a major review of the UK’s retirement system.
The review has been blocked amid concerns about its impact on businesses, which are already facing pressure from tax measures announced in October’s Budget.
The delay affects a crucial examination of the country’s pension system that aimed to enhance retirement incomes for millions of workers.
Labour’s decision comes as businesses grapple with other financial pressures.
Specifically, the rule change would reportedly help the average earner who saves into such a scheme over their lifetime to finish with more than £11,000 extra in their pension pot on retirement.
Said reforms would see Britons have a “pot for life” instead of smaller, underperforming pension funds which are at risk of being lost.
These concerns specifically focus on potential requirements for employers to increase their National Insurance contributions, which was announced during Chancellor Rachel Reeves’s Autumn Budget earlier this year.
Next year, the rate paid in National Insurance by employers will jump to 15 per cent.
Money generated from the tax go towards the employee’s benefit entitlement, including their state pension.
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Pension savings could be hit due a Government review “delay”
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Reeves has personally intervened to delay the second stage of the review following backlash to her fiscal statement.
The review is being jointly conducted by pensions minister Emma Reynolds alongside the Treasury and the Department for Work and Pensions (DWP).
Originally, the second stage was expected to be announced before the end of 2024.
When approached about reports suggesting the review had been shelved indefinitely, the DWP did not confirm this characterisation but also declined to provide a specific timeframe for its continuation.
A DWP spokesperson emphasised the government’s commitment to supporting future pensioners through their “Plan for Change.”
The spokesperson confirmed that the first phase’s interim report was published at the Mansion House event on November 14.
They added that the final report from the first phase will be published in spring.
“Government will set out more details on the second phase in due course,” the spokesperson said.
Said reforms would see Britons have a “pot for life” instead of smaller, underperforming pension funds which are at risk of being lost
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The statement highlighted that the Government had announced the landmark two-stage Pensions Review shortly after coming into office.
They also pointed to the inclusion of the Pension Schemes Bill in the King’s Speech as evidence of their commitment to pension reform.
Helen Morrissey, the head of retirement analysis at Hargreaves Lansdown, called the delay “disappointing” and stressed the urgency of addressing pension adequacy.
“We recognise that employers and households are under strain, but this review is just the first step and should set out a long-term timetable to boost savings,” she said.
Tom Selby, director of public policy at AJ Bell, described the issue as a “ticking time bomb” and “one of the most pressing issues facing society.”
He noted that Labour’s focus on “fixing the foundations” of the UK economy had seemingly pushed pension adequacy to the back burner.
“The foundations of pensions are also shaky and delaying meaningful action to address these problems will leave millions of people at greater risk of an income shortfall when they reach retirement,” Selby warned.
Kate Smith, the head of Pensions at Aegon, also expressed deep disappointment over the rumoured delays to the second phase of the Pension Review.
She explained that the delayed review was expected to include reducing the minimum pension age from 22 to 18 and removing the £6,240 annual salary offset.
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The review was also anticipated to set out plans for increasing mandated contributions from eight per cent to 12 per cent of earnings over the next decade.
“We fully understand that the Government needs to consider trade-offs, but delaying the second phase of the Pension Review risks damaging many peoples financial futures,” Smith warned.
She noted that while other government initiatives like Value for Money and Scale plans might help some, “what matters most is higher pension contributions”.
Smith added that political will appears to be “fast evaporating” following employers’ reactions to the increase in National Insurance Contributions planned for next April.
