Major UK pensions rule changes announced | Personal Finance | Finance

Experts have welcomed plans to publish pension scheme league tables saying “sunlight is the best disinfectant” – but they have warned of unintended consequences. The Government has released its plans for pensions for the next three years, including a public league table for pension schemes.

A new Value for Money framework is designed to drive up standards and ensure savers get the best possible returns, the Government said. Savers will be able to see how the returns their pension scheme delivers compare to others, while the poorest performing schemes will have to improve or close.

Schemes will be assessed on their investment performance, costs and charges, and quality of service, and rated from red (for poor value) through to green (outperforming on value). Where they fail to act, regulators can issue compliance notices, levy fines, or in serious cases take steps to wind up the scheme.

From 2028, larger schemes, including Master Trusts, large single-employer schemes, and multi-employer contract-based schemes which are open to new employers, will complete and publish these Value for Money assessments. The changes will be rolled out to all workplace pension schemes from 2029.

Torsten Bell, minister for pensions, said: “Our task is to level up the quality of the pensions private sector workers receive, towards those in the public sector. For the first time, we’re making sure savers can see whether they are getting a good deal from the pension they’re saving into.

“We can’t have people working hard to earn the money they save towards retirement, only to have those funds sitting in schemes that aren’t working just as hard on their behalf. The stakes are high, when the gap between the best and worst performers could cost a saver with a £10,000 pot over £5,000 across just five years.

“This is part of the biggest pension reforms for a generation, which are now entering the delivery phase that we are publishing the timeline for today. They represent a wide consensus across the pensions industry, who have helped shape plans that also tackle the proliferation of small pension pots, drive the move to bigger and better pensions schemes, and simply the process for savers of turning their hard earned savings into a decent retirement income.”

Graham Nicoll, financial planner, chartered FCSI at NCL Wealth Partners, said visibility was needed for pension schemes.

He added: “The principle of the plan is positive, as this will hold pension schemes more accountable for the value they provide. The key is what is done with this information by employers once the data is available. Auto-enrolment has helped to get more people across the UK saving for their retirement, but most people are doing this without any engagement with their pension.

“Having spoken to many potential clients they are unsure whether their pensions are invested appropriately, whether they are on track for the retirement they want and what actions they should be taking to close any shortfall. Visibility is good, but education and better employee engagement is just as important.”

Paul Denley, CEO at London-based Oakham Wealth Management, said it might encourage “hugging the average”.

He added: “Sunlight is the best disinfectant, and pensions have sat in the shade too long, so transparency on performance, costs and service is welcome. But league tables come with health warnings. Rank schemes publicly and you risk herding, with trustees hugging the average to avoid a red rating rather than taking the long-term risks that build retirement pots.

“Value must be judged on net returns over meaningful timeframes, or we risk a race to the bottom on cost at the expense of performance. Done well, this exposes chronic underperformers charging handsomely for mediocrity and forces them to improve, consolidate or disappear.

“Few savers shop around, so success rests on regulators acting against persistent failures. Done badly, it produces a sea of amber that protects mediocrity. The direction is right. The devil will be in the methodology.”

Antonia Medlicott, founder and MD of London-based Investing Insiders, said pension schemes weren’t working for many Brits.

She added: “These plans are long overdue, this should have been done years ago as plenty of pension savers are in woefully underperforming default funds. Our own pension performance tables at Investing Insiders revealed a stark difference in the 5-year returns of over 13,000 funds, with the best pension returning 180% profit, but in comparison, the worst lost a staggering 98.59% of its value.

“This means someone with a £50,000 fund would have just £705 left, whereas if they had the best, their value would increase to £140,140. This represents a difference of 19,778%. With 89% of all pension funds in Medium-High and High risk categories underperforming against the FTSE 100 (6,540 out of 7,370 funds), it proves that pension schemes aren’t working for too many Brits, who are being left shocked in retirement as they will naturally assume their pension will be progressing at a good rate, so more needs to be done to inform people of the volatility of their funds.”

Scott Gallacher, director of Leicester-based Rowley Turton, warned of “unintended consequences”.

He added: “Greater transparency is generally welcome. If poorly run pension schemes improve or leave the market, that’s good news for savers. However, there are two potential concerns. The first is that, for decades, regulators have rightly reminded consumers that past performance is no guide to future returns.

“Yet these league tables inevitably place significant emphasis on historic investment performance. The second is the risk of unintended consequences. If schemes know they will be publicly ranked, some may be tempted to take greater investment risk in an attempt to climb the table.

“That creates a moral hazard, where managers focus on improving a published score rather than delivering the most appropriate long-term outcomes for members. A pension scheme shouldn’t be judged solely on whether it beat its peers over the last few years. Long-term consistency, sensible risk management, good governance and value for members matter just as much.”

David Stirling, Independent Financial Adviser at Belfast-based Mint Wealth, said it was taking a while to be implemented.

He added: “A pension league table is, in principle, a fine idea. The problem is that the government is announcing it in July 2026 and rolling it out from 2028, which means millions of people currently sitting in underperforming schemes will spend the next two years none the wiser.

“By the time the red-to-green ratings arrive, plenty of savers will have lost returns they will never get back. The immediate message for anyone with a pension is not to wait for 2028 to find out where their scheme sits. The data on charges and investment performance exists today.

“If your employer has never reviewed the pension scheme they enrolled you in, ask why. The government is finally shining a light on one of the least scrutinised corners of personal finance. The light switch has always been there, people just never knew to look for it.”