Not all of us are optimistic about improving the lot of those retiring and in retirement. It is interesting to see who is against what Torsten Bell is up to.
The most significant retirement shake-up for a generation threatens to strip away pension freedoms and leave savers worse off.
The radical reforms, announced this week, will push 17 million workers to exchange their pension pot savings for the promise of an income that attempts to keep pace with inflation and lasts until the day they die. However, critics have highlighted a plethora of red flags that they say risk costing private sector pension savers when the changes arrive in 2029. Experts have warned that the reforms could chip away at valuable pension freedoms that empowered savers to make their retirement pots go further. And it is feared that the changes could be pushed through parliament without proper scrutiny.
In response, Times Money is launching its Stop the Pension Power Grab campaign, calling for measures to ensure that retirements are protected. Writing in The Times, the Conservative shadow work and pensions secretary Helen Whately said that Labour had
“announced the biggest change to how people draw down their pensions in a decade ” and called the move a “power grab dressed up as a consultation”
Baroness Altmann, a former pensions minister, criticised the “nanny state” plans. She said:
“It’s not up to the government or the pensions industry to say, ‘We know better than you,’ and that’s one of the problems with this approach.
“If you want people to invest and be happy with their pensions, you need to make sure people understand what is happening with their money rather than being told to disengage because ‘other people know better than you’.”
The reforms from the pensions minister Torsten Bell, who was previously chief executive of the left-leaning think-tank the Resolution Foundation, are a significant shift away from the pension freedoms of 2015 that gave savers more control over their savings and encouraged them to keep their money invested while taking an income.
Before then savers usually had to exchange their pension pots for an annuity, which paid out an income until they died. However, pension firms were strongly criticised, and in some cases fined millions of pounds, for failing to tell savers that they could get more for their money by shopping around. Critics fear that Bell’s proposals risk leaving savers exposed to the same widespread mis-selling.
To best protect pension savers, Times Money is calling for:
- The reforms to face a proper vote in parliament.
- Savers to be told if they could get a better deal elsewhere.
- Pensioners to be given ample time to change their mind and get their money back.
The retirement reforms announced on Tuesday were the biggest since savers were given radical pension freedoms by George Osborne, then chancellor, more than a decade ago. The details of the measures, which will not be the subject of full parliamentary debate, will mean pension savers will no longer be left alone to decide what to do with their retirement funds, unless they go to the trouble of opting out of schemes that will aim to provide income until they die.
However, politicians and pensions experts have warned that savers could lose out if the reforms are not properly executed. Times Money has found that:
- Critics fear that the reforms will take valuable control away from savers.
- Savers will get no guarantee on the rate of income they will get or if it will rise with inflation.
- Pensioners could be left unable to get their money back.
- The changes could be pushed through with limited parliamentary scrutiny.
- The consultation document published on Tuesday was riddled with errors.
- Experts say the reforms will do little to bridge the gap between public and private sector pensions.
A retirement revolution?
Traditional workplace pensions that pay out an income for life based on your salary — known as defined benefit (DB) schemes — are now rare in the private sector because they are prohibitively expensive for businesses to offer. Instead, most workplaces offer defined contribution (DC) schemes, where contributions go into a pot and what you get in retirement depends on how much is paid in and stock market growth.
Osborne’s pension freedoms meant savers were no longer obliged to buy an annuity (an insurance product that pays out a guaranteed income), so since 2015 they have been able to spend their pot how they like when they reach retirement age. This, however, left millions facing daunting choices over how to manage their savings to avoid running out of money later in life.
Under the plans announced this week, a new “guided retirement” framework will require all pension firms to offer a default pension that automatically converts savings pots into a regular, reliable income. When a saver is ready to retire, their pension firm will ask a few basic questions (such as their age, marital status, housing, and whether they have other savings) and guide them into a suitable default plan.
Savers will be asked to agree to the scheme only once, and before that point will have the option to take their money elsewhere. But once they are routed into a default collective pension scheme their savings will be pooled with thousands of others in a single fund. Once they have been invested for a year, the saver can no longer change their mind and get their money back.
Bell said he expects many pension firms to offer a “flex then fix” approach, which would allow savers to take an income from their pot until later in retirement when they could use the remaining pot to buy a guaranteed income.
Lack of scrutiny
Helen Whately, the shadow work and pensions minister, has raised concerns that the changes will be passed into legislation without proper parliamentary scrutiny.
Although the principal of pensions reforms was part of the Pension Schemes Bill, which was passed into law in April, the details of the shake-up announced this week will be debated only by a delegated legislation committee in the Commons, and probably a grand committee in the House of Lords.
Unlike parliamentary bills, regulations cannot be amended, only approved or rejected. The House of Lords rarely votes against regulations — it has done so less than five times between 1950 and 2019. If the changes were put forward in a bill they would get several days of debate in the House of Commons and be open to an amendment.
Times Money found that the government consultation paperwork appeared to have been prepared in a rush, containing errors. One section mistakenly refers to the Pensions Act 2021 rather than the Pension Schemes Act. Other sections were missing words and had punctuation errors.
Stop the Pension Power Grab
No guarantees
Bell had said his reforms would mark the return of “genuine pensions” that would help to bring private sector savings schemes closer to the inflation-proofed salary-linked deals that are on offer in parts of the public sector. But Altmann, who was pensions minister in 2015-16, said this was “absolute nonsense”.
She said these types of guaranteed savings schemes could be dangerous because they depend on some savers dying younger than expected to subsidise those who live longer, and on a fund’s good performance in the markets.
“Those coming after you may end up with a lot less if they are victims of bad markets,”
she said.
The new scheme promises to deliver better returns by pooling pension pots, allowing fund managers to take bigger risks and hopefully drive better growth. Savers could be allowed to combine pension pots from different employers.
Royal Mail was the first employer to launch a similar scheme, in 2023. In its first year the fund had a 6.4 per cent return — two percentage points above the rate of inflation. However, there is no guarantee that the government’s pension schemes will provide income that will keep up with inflation — this will depend on fund performance, which means there is a risk that pensioners could be worse off than if they bought an annuity on the open market, or kept their pot invested elsewhere and took an income through what is known as drawdown.
Tomm Adams, a partner at the advisory firm Blick Rothenberg, said:
“Phrases like ‘genuine pension’ as used in the government’s announcement shouldn’t overpromise: income from this type of scheme could go down as well as up.
“While this scheme could provide sensible guardrails as people live longer, freedom of choice, consent before any conversion and access to tax-free cash must be preserved.”
Knowledge is power
Before 2015 three quarters of those with a DC pot were effectively forced to use it to buy an annuity at retirement that would provide them with a guaranteed, fixed income for life. You could leave your pension invested and take income from it, but this was not the easy option, and the percentage of your pot that you could take was capped by a government-set limit. Only pensioners who had a guaranteed minimum secure income of £20,000 a year (later reduced to £12,000) could make unlimited withdrawals.
Many savers bought annuities directly from their pension firm without realising they could shop around and get better deals elsewhere. Savings firms frequently failed to ask or inform their customers about enhanced annuities, which could offer higher payouts for those with health conditions.
The pension firm Standard Life was fined £30.7m and Prudential £23.9m by the Financial Conduct Authority (FCA), the City regulator, for failings over the sales of pensions and annuities.
Times Money is calling for the government to establish safeguards so that pension firms have to be transparent about their fees and charges, and explicitly tell consumers if they can get better deals elsewhere.
The need for a get-out clause
Catherine Foot from the Standard Life Centre for the Future of Retirement said it was unclear how hard customers would be pushed towards the new retirement regime.
“There has to be guardrails — the scheme should be a safety net, not a box you can’t get out of.”
In the 29 months after the 2015 pension freedoms twice as many pots were moved into drawdown than were used to buy annuities and 53 per cent of the pots accessed were fully withdrawn. The Pensions Commission, which was revived by the government in 2025 to look at how the system was working, has said that savers are spending their money at an unsustainable rate. Some 25 per cent start taking money from their pots at the first opportunity, and a third of pots worth between £100,000 and £249,999 are being spent at a rate of 8 per cent a year.
Experts say that keeping withdrawals to 4 per cent of your pension should ensure that your pot will last for a 30-year retirement. But pensioners may have other forms of wealth — such as housing — to fall back on in their later years.
“Pension firms have a narrow view of their customers, and they don’t know about their wider financial circumstances, such as their housing situation,”
Foot said.
“Guided retirement can only really work if the firm creating that default has enough of a sense of your total financial situation, and that’s not the case at the moment.”
What about inheritance?
From April pension pots will form part of your estate for inheritance tax purposes. If the whole of your pot has been pooled under the proposed new system to provide an income, there will be no pot to pass on when you die.
Steve Webb, a former pensions minister in the coalition government who is now at the consultancy LCP, said:
“If your DC pot turns into an income for life, then, with limited exceptions, such as payouts for minimum guaranteed periods, there is likely to be no inheritance tax liability. But there will be nothing to inherit either.”
He said that he thought the government was
“fundamentally hostile to the concept of pension freedoms. It has loaded the defaults much too far towards the view that a ‘regular income for life’ is really the only thing you should do with your pot.
“That may be right for some, such as a renter who has no other regular income and has a rent to pay every month, but much less so for others, such as a couple with two state pensions, some legacy DB pension, other savings and so on. They may want the flexibility to take their pension when they want, and to ‘front load’ spending in retirement if they wish.”
Rachel Vahey from the investment firm AJ Bell said:
“More choice in retirement should mean better outcomes for pension savers, not more confusion or false expectations.
“The danger is that savers could find themselves in arrangements they don’t fully understand, and ultimately with less income in retirement than they had planned for or had been led to expect based on overly optimistic assumptions.”
The consultation into the government’s guided retirement proposals, run in partnership with the Pensions Regulator and the FCA, runs until December 22.
The government said:
“Millions of private sector workers are saving for retirement but reach the end of their working lives with a pot of money rather than a pension they can rely on.
“Guided Retirement will change that, giving them the option of a secure income for the whole of their retirement and we are working with pension providers and employers to make sure it is practical to deliver.
“This is not a one-size-fits-all approach. Pension schemes will design around the needs of their members, and anyone who wants a different option will always be free to choose one, including opting out altogether.”
That £4 figure may be defensible as an illustration of the combined benefits of pension saving, employer contributions, tax relief…