King’s Speech 2024: What does a Labour government mean for your pension?

The King’s Speech confirmed the new Labour government will look at pension reforms. What’s been announced and what other policies could follow?

Prime Minister Keir Starmer and leader of the opposition Rishi Sunak walk through the Members' Lobby to hear the King's Speech.
Prime Minister Keir Starmer and leader of the opposition Rishi Sunak at the State Opening of Parliament.
(Image credit: Photo by Stefan Rousseau - WPA Pool/Getty Images)

The new Labour government set out its legislative agenda in the King’s Speech today, confirming it will look at pension reforms.

“Bills will be brought forward to strengthen audit and corporate governance, alongside pension investment,” King Charles told Parliament. 

The King’s Speech is part of the State Opening of Parliament, and signals the start of the parliamentary calendar. The speech is prepared by the government but delivered by the monarch. 

Subscribe to MoneyWeek

Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Get 6 issues free
https://cdn.mos.cms.futurecdn.net/flexiimages/mw70aro6gl1676370748.jpg

Sign up to Money Morning

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Sign up

The Prime Minister’s Office published further detail shortly after the speech, revealing the government’s plans to deliver a Pension Schemes Bill. This will “support over 15 million people who save in private-sector pension schemes”, the document says. 

The idea is to help savers get better outcomes from their pension assets, while supporting the government’s mission to deliver growth. The bill could help the average earner boost their private pension pot by more than £11,000, according to the government document.

Pension reform has been in sharp focus in recent years. People are living longer and the cost of retirement has risen dramatically, meaning many pensioners could find they run out of money in later life. 

Small pension pots to be consolidated

The bill will look to consolidate small pension pots, automatically bringing them together to “maximise income in retirement” and to “deliver value for every saver”, the government says.

This should reduce admin for savers, helping them keep on top of their retirement savings. Most people change jobs several times over the course of their lifetime, and as many as one in five savers think they could have lost track of a pension pot. 

This amounts to a staggering £50 billion in lost pension savings, according to recent analysis from the Centre for Economics and Business Research. 

The previous government proposed “pot-for-life” reforms to help tackle the issue of lost pots. The Pension Schemes Bill from the new Labour government could help further these discussions.

As well as benefitting savers, the government adds that this measure will help pension schemes cut costs. Under current measures, schemes are required to manage “a substantial number of loss-making pots”, the government says. This has undermined their ability to invest in improving their offering for savers.

Consolidation could also help savers “reduce the fees they pay”, says Becky O’Connor, director of public affairs at PensionBee. Recent research shows that half of pension savers have no idea they are being charged fees – but over the course of a lifetime, uncompetitive fee structures could cost you dearly. 

Delivering better value for money

The government says it will introduce a “standardised test” to ensure pension schemes are delivering good value for money. Trust-based defined contribution schemes will need to complete this test.

“This should result in consolidation in the pensions market by leaving a smaller number of well-performing, well-governed schemes,” the government adds.

As well as benefitting savers, the government believes this will help ensure assets are being invested more productively. It has declared economic growth is its “national mission”, and hopes to revitalise the UK stock market, which has seen significant outflows since Brexit. 

Many UK companies have also fled the London Stock Exchange in recent years, seeking listings elsewhere as UK equities remain chronically undervalued. 

Better options for savers once they reach retirement

The proposed pension reforms will also require schemes to offer better options to savers once they reach retirement age. The government wants to ensure savers have a proper pension and “not just a savings pot when they stop work”, it says.

To help tackle this, schemes will be required to offer members “a retirement income solution or range of solutions, including default investment options”. We don’t yet know exactly what this will look like, but current retirement approaches include buying an annuity, putting your pension pot into drawdown, or a combination of the two.

“With the growing dominance of defined contribution pension schemes and the freedoms they offer, people’s strategies for taking income from their pensions are now of paramount importance,” says Kirsty Anderson, retirement specialist at Quilter. 

“Decumulating from a pension can be treacherous, particularly without expert help, and savers can easily see their retirement pots run dry before they pass away,” she adds.

Other reforms in the Pension Schemes Bill

The government also hopes to consolidate the defined benefit (DB) pension market through the use of so-called “superfunds”. 

If you have a defined benefit pension, this means you will be paid a specific income on retirement, which is usually based on your length of service with your employer and your earnings over the course of your employment.

A superfund exists when several defined benefit schemes are consolidated into one larger scheme. This allows employers to offload their defined benefit pension liabilities, which can help them manage risks and costs.

The government says consolidation offers “greater protection for members”, reducing the risk of them losing part of their pension if their employer becomes insolvent.

In a separate measure, the government also intends to extend the definition of “terminal illness”, allowing some pension savers to receive a lump sum payment at an earlier stage in the event they are affected by ill health. 

New pension reforms will also look to give increased powers to the Pensions Ombudsman, an independent organisation that investigates complaints and disputes about pension schemes.

Will further pension reforms be announced in the Budget?

Nothing further was announced in the King’s Speech, but pensions have been discussed widely in the lead-up to (and aftermath of) the general election

It is possible we will hear more on the topic in the months to come, for example in the new government’s first Budget statement. Chancellor Rachel Reeves has suggested she may deliver this as early as September.

The new pensions minister Emma Reynolds will also be kept busy over the coming months. We recently looked at some of the key priorities in her in-tray

A key area of focus in recent months was the state pension triple lock, which Prime Minister Keir Starmer committed to keeping in the Labour manifesto. This promises to increase state pension payments each year in line with inflation, wages, or 2.5% – whichever measure is highest.

The Lifetime Allowance also came up on the campaign trail. This is essentially a cap on how much savers can stash in their pension pot before they are subject to a hefty tax bill. Former Chancellor Jeremy Hunt abolished it in his 2023 Spring Budget, and Labour had previously indicated it would look to reintroduce the measure. 

However, after some back and forth, the party U-turned on its plans. This comes as welcome news to savers with large pension pots and high-paid workers with generous final salary schemes.

Labour’s pensions review

The Labour manifesto promised the party would carry out a pensions review to improve outcomes for savers and increase investment in UK markets. The King’s Speech and Pension Schemes Bill shows an early commitment to this promise.

More is likely to follow. Labour’s “Financing Growth” document from January provides further colour on what it would like to do with the retirement savings landscape.

Tom Selby, director of public policy at AJ Bell, thinks we can expect to see a continuation of the “Mansion House” agenda started by former chancellor Jeremy Hunt. This aims to boost the amount of capital that pension schemes invest in UK companies – specifically high-growth private companies.

Will Labour change the way pensions are taxed?

On the campaign trail, former Prime Minister Rishi Sunak accused Labour of planning to introduce a “retirement tax”. In reality, Labour has not announced anything like this. What Sunak was referring to is the fact that the state pension is rapidly creeping towards the tax-free personal allowance threshold. 

The full new state pension is currently £221.20 per week, which amounts to just over £11,500 per year. This currently falls within the tax-free personal allowance (£12,570), but it won’t be too long before it crosses over the line. 

For context, the state pension went up by 8.5% in April thanks to high inflation. The April before, it went up by 10.1%. 

What’s more, most pensioners have additional sources of income which supplement their state pension. This could include income from a private pension or annuity, or investment income. In recent years, retirees have found themselves paying a higher tax bill thanks to the effects of fiscal drag.

The Conservatives had promised to unfreeze the personal allowance for pensioners under their “triple lock plus” pledge, increasing it each year in line with the same three protections as the original “triple lock” policy. However Labour criticised the measure and refused to match it in its manifesto. 

This means most pensioners will find themselves paying a higher tax bill in the years to come, even if the new government doesn’t introduce any new taxes on pensions. We recently shared five steps you can take to cut your tax bill in retirement.

Katie Williams
Staff Writer

Katie Williams has a background in investment writing and is interested in everything to do with personal finance, investments, and financial news. Before joining the MoneyWeek team, Katie worked as an investment content specialist at Invesco EMEA, a global asset management firm, which she joined as a graduate in 2019. While there, she enjoyed translating complex topics into “easy to understand” stories. She studied English at the University of Cambridge and loves reading, writing and going to the theatre.