Pension system overhaul could boost retirement savings by £4,700 - 'we must get this right!'

Britain's pension system is set for a major shake-up after regulators and the Labour Government jointly unveiled plans to force pension schemes to publish clearer performance data using a traffic light-style rating system.

The Financial Conduct Authority, the Department for Work and Pensions and The Pensions Regulator announced the proposals today, which would require providers to clearly set out how well they perform, what they charge and the quality of service they deliver.

Under the new framework, pension schemes judged to offer poor value would be required to improve or move savers into better-performing alternatives.

The changes could make a meaningful difference to retirement incomes, with the gap between weak and strong schemes adding thousands to pension pots over time.

Consultation on the joint proposals will remain open until March 8, 2026. Any final rules will depend on the feedback received and on the Pension Schemes Bill receiving Royal Assent.

The regulator said that millions of people rely on pension income to support them later in life, adding that they must "make sure we get this right and help transform pension saving for millions".

More than 16 million workers with defined contribution pensions could benefit from the proposed changes. The difference between pension schemes can have a major impact on retirement savings over time.

Regulators say a £10,000 pension pot could grow to just £10,400 over five years in a poorly performing scheme. But in a high-performing scheme, the same £10,000 could rise to £15,100 over the same period.

That is a 46 per cent difference in returns, leaving savers £4,700 better off simply by being in a higher-quality pension scheme.

The proposals focus on long-term value and include new measures showing the returns and risks savers can expect over the next ten years.

The rating system will use four colour categories to make it easier to compare pension schemes. Dark green will show strong performance, light green will indicate good value, amber will flag schemes that need improvement, and red will identify poor value.

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The latest consultation is aimed at decision-makers across the defined contribution market, including scheme trustees, and builds on feedback gathered during last year’s review.

Sarah Pritchard, FCA Deputy Chief Executive, emphasised that value extends beyond fees alone: "Good value isn't just about low costs - it's about strong performance, good service, and transparency. We want to see a focus on value. By working with government and The Pensions Regulator, we will help secure better returns for pension savers."

Nausicaa Delfas, TPR Chief Executive, stressed the importance of getting the framework right: "Millions of people rely on pension income to support them through later life. We have to make sure they get value for their money.

"This framework will empower decision-makers to either improve their scheme or consolidate out of the market."

Pensions Minister Torsten Bell argued the current system leaves savers in the dark: "It is simply too difficult for people to know whether their pension savings are working for them. That's not right when we're talking about something as important as people's security in retirement."

Mr Bell added that the reforms would bring much-needed clarity: "These proposals change that. Pension schemes' performance will be public with a simple rating system. In future, savers will know if they are getting a good return or not.

"This is about being straight with people and making sure people's savings work as hard as they did to earn them."

The traffic light system will also strengthen governance, with clear expectations placed on trustees and providers.

Schemes that fail to deliver good value for members could be forced to take action, including closing to new business and moving existing savers into better-performing alternatives.

The aim is to push underperforming providers to either improve their standards or leave the market altogether.