Rachel Reeves' pension reform under fire for ignoring 'elephant in the room' as key issues left on 'back burner'

The new Bill, introduced on Thursday June 5, includes a series of measures that will shape the future of retirement savings. These include new rules to merge small pension pots, create large-scale funds, and assess whether pension schemes are delivering good value for money.

The Bill was first promised in the July 2024 King's Speech and is now being brought forward by Work and Pensions Secretary Liz Kendall and Chancellor Rachel Reeves.

Under the proposals, pension pots of under £1,000 will be automatically combined into a single scheme to help people keep track of their retirement savings. This is intended to tackle the problem of "micro pots" which build up as workers switch jobs throughout their careers.

The Bill also sets out a framework for the creation of "superfunds" in defined benefit schemes and large "megafunds" in defined contribution schemes. These new structures would allow pension funds to pool their assets, reach a scale of £25 billion or more, and invest more effectively.

Reeves described the legislation as "a game changer".

Pensions minister Torsten Bell said: "Pension saving is a long game, but getting this right is urgent so that millions can look forward to a higher income in retirement."

Other changes include requiring schemes to offer clearer guidance on how to turn pension savings into retirement income, and allowing the safe extraction of surplus funds from overfunded defined benefit schemes to support employers and members.

While the Government claims the reforms will modernise the pension system and deliver better outcomes for savers, others say they fall short of what's truly needed.

Despite industry optimism, Sir Steve Webb, former Liberal Democrat pensions minister and now a partner at LCP (Lane Clark & Peacock), warned that the Bill’s "biggest omission" is its failure to boost the flow of money into pensions.

Webb said: "The Government’s own projections show that more than 12 million people are not saving enough for retirement and yet the first major pensions legislation of the new Parliament does nothing to address this ‘elephant in the room’.”

Webb also warned that the Government is pushing the problem further down the line.

He said: "The very fact that the adequacy of pension saving is not going to be considered until the second phase of the Government’s pensions review shows that this issue is unfortunately on the back burner."

The current Bill does not include any measures to raise minimum contributions or review how much people are saving into their workplace pensions.

Those questions are expected to be addressed in a second stage of the Government's pension review, the details of which have not yet been announced.

Rocio Concha, director of policy at consumer group Which?, said: “Pensions have become far too complex and fragmented, so it’s good to see the Government taking steps to simplify them and ensure schemes provide value for money.”

She added that consolidating small pots would help savers manage their pensions more easily.

However, some in the industry believe the changes must go further.

Yvonne Braun from the Association of British Insurers said: "We also urgently need to tackle the level of pension contributions which are too low to create an adequate retirement income for many."

She called on the Government to set out the details of its pension adequacy review as soon as possible.

Although many of the measures in the Bill have been welcomed, the lack of immediate action on contribution levels has raised concern.

Experts say millions of savers could face a shortfall in retirement unless stronger steps are taken soon.

As the Bill progresses through Parliament, debate is likely to continue over whether the current reforms go far enough to meet the challenges of a changing pensions landscape.