Now might be the best time to change pension providers

The government will announce a crackdown on ‘underperforming’ pension funds in the upcoming Spring Budget.

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Helena Young
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Underperforming pension funds will be penalised if they don’t help UK workers save enough for retirement, under new laws expected to be announced this week.

The reforms are aimed at boosting returns for pension holders, as well as stimulating the economy by encouraging domestic investment. According to The Telegraph, Chancellor Jeremy Hunt intends to unveil the plans in Wednesday’s Spring Statement.

With the retirement age creeping upwards, and the cost of living rising, pensions have become a concern for UK workers. Concerned your savings will be affected? Read on to find out what your options are.

What are the new rules?

The Chancellor’s planned reforms to defined contribution (DC) and defined benefit (DB) pensions were first introduced in last year’s Mansion House speech.

In the speech, Hunt said the government would work to ensure that DC schemes that do not deliver “the best possible returns for savers” will face greater penalties from the Pensions Regulator.

Meanwhile, a new support system will be created for the UK’s 5,000 DB pension schemes, to help fund managers more easily manage workers’ savings.

UK pension performance is among the worst in the developed world, with average annual returns sitting at just 9.5% in 2021, analysis by Moneyfacts shows. This is compared to an average gain of 20.4% in Canada and 22.3% in Australia.

As a result, the average pension pot for UK workers currently stands at just £107,300, according to the Office of National Statistics (ONS), indicating a lack of sufficient savings for a comfortable retirement.

Should I switch pension providers?

Your pension is invested to help it grow and give you more income when you retire. Because equities tend to go up and down in value, savers put a lot of faith into their fund manager, which can leave them short-changed if the provider makes risky investments.

Most people are automatically enrolled onto a new DC scheme in every new role. That means in today’s labour market, with more individuals becoming self-employed and staff often changing jobs, it’s easy to forget about your investments and their performance.

Predicting future returns on your pension growth is impossible with certainty. But with the new rules meaning underperforming funds could be wound up or closed, it’s a good time to think about how a transfer might strengthen your nest egg.

Moving your money into a new pension pot can reap big financial benefits. For example, you might find one with smarter or more specialist investment options, such as the option to put money directly in shares or property, that could boost your retirement allowance long-term.

How to switch pension providers

Switching your pension provider is actually relatively straightforward. Simply set up the pension and then send the details of any old schemes to your new provider to start the transfer. Easy.

In fact, the most important stage when switching is preparation. There is a lot of research to carry out before you swap providers. But the result will likely be worth your time as it could boost your pot by thousands of pounds.

5 things to consider before switching pension providers

  1. Pension type: check what kind of pension you have. Defined contribution pensions are usually simple to move around. However, defined benefit pensions can be a little more complicated (if worth more than £30,000, you’ll need to chat with a financial advisor first).
  2. Investment choice: consider if you want access to a wider range of investment options. Explore the sectors and causes that your pension fund has previously put money into if you are concerned about making responsible or ethical investment choices.
  3. Flexibility: most pension providers allow workers to take some of their retirement money (also known as a phased retirement). Still, it’s worth checking this so that you won’t have a fixed date for retirement if your plans change later in life.
  4. Costs: fees (such as set-up fees or trading fees) can eat into your returns over time. Compare the fees of different funds to find one that offers good value for your money.
  5. Benefits: you might have certain perks or guarantees on your existing plan that aren’t offered by the new provider. Business owners need to be particularly careful here as workers might be disgruntled if they are unable to access a benefit they previously relied upon.

Considerations for small business owners

Pensions are one of the most valuable elements of your workforce’s overall compensation package. Depending on the plan you choose, they can be a crucial employee benefit that encourages retention or, conversely, leaves staff dissatisfied and vulnerable to quitting.

Any change that impacts an employees wellbeing or money must be well thought out as it can have big repercussions for HR and staff satisfaction.

If you’re a business owner considering transferring to a new Workplace Pension Scheme, make sure you take these additional steps to ensure you have buy-in from workers:

  • Employee communication: throughout the above process, keep your employees informed about the transfer and rationale behind the decision. They may have concerns about how the change will impact their savings, so take the time to answer their questions transparently
  • Auto-enrolment compliance: you are legally required to ensure that the new provider meets auto-enrolment requirements. It’s also a good idea to stay updated on any regulatory changes or employer duties regarding pensions in case new laws impact your choice of provider
Written by:
Helena Young
Helena is Lead Writer at Startups. As resident people and premises expert, she's an authority on topics such as business energy, office and coworking spaces, and project management software. With a background in PR and marketing, Helena also manages the Startups 100 Index and is passionate about giving early-stage startups a platform to boost their brands. From interviewing Wetherspoon's boss Tim Martin to spotting data-led working from home trends, her insight has been featured by major trade publications including the ICAEW, and news outlets like the BBC, ITV News, Daily Express, and HuffPost UK.

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