What changes will Bell ring as pensions minister?

Scottish politician Jack Swinney and Torsten Bell (right) at The Resolution Foundation, a think tank, in London in April 2024. Photo credit: Belinda Jiao/Getty Images

In a post on social media site X, Torsten Bell said he is “absolutely delighted to start work as the pensions minister”, saluting “two amazing bosses” in Chancellor Rachel Reeves and Secretary of State for Work and Pensions Liz Kendall.

Bell’s appointment was announced late Tuesday afternoon and has certainly raised a few eyebrows. His predecessor, Emma Reynolds - who takes the reins as City minister after Tulip Siddiq resigned - only held the post for six months.

A cursory glance at Bell’s CV helps to explain why he was considered a suitable fit for the role. A former CEO at the Resolution Foundation, a think tank, Bell also worked in the Treasury, becoming special adviser to Alistair Darling during the 2008 global financial crisis, and was director of policy to former Labour Leader Ed Miliband.

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During his time at The Resolution Foundation, where he spent nine years, he was also instrumental in designing the furlough scheme, which rescued the livelihoods of thousands of workers and businesses during the coronavirus pandemic.

Aggressive disruption

Industry figures have reacted positively to Bell’s appointment.

Tom McPhail, director of public affairs at the lang cat, a consultancy, described Bell as a relatively novice MP but hailed his credentials. “I'd expect him to press ahead with the existing pension review and planned reforms; if anything he'll look to accelerate this work and to disrupt the existing pension sector more aggressively.”

McPhail also believes that Bell is “now a slam-dunk replacement for Rachel Reeves as chancellor if the prime minister finds himself casting around for a replacement”.

It’s clear that Bell is well thought of. In July 2024, a couple of weeks after Labour’s landslide general election victory, he was being earmarked as a future chancellor. Many believe that Bell’s stint as pensions minister will prove a stepping stone to become Rachel Reeves’ successor.

Zoe Alexander, director of policy and advocacy at the Pensions and Lifetime Savings Association (PLSA), said: “We welcome Torsten Bell as the new Minister for Pensions and look forward to engaging with him on the Pensions Review in what is a critical year for pensions policy. Torsten is already well known and respected within the pensions industry. We are optimistic that he will bring the leadership that is needed to make progress on both phases of the Pensions Review and look forward to working with him to continue to deliver a system that is adequate, affordable and fair, in the interests of UK savers.”

As Alexander notes, this is a particularly crucial 12 months for the retirement landscape. A bulging in-tray awaits Bell, who’s tasked with improving the pension regime to create better outcomes for pension savers.

The chief aim is to encourage people to stick more away – no easy task, and something that won’t happen overnight.

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But in the short term, the government might be hamstrung by its own policies. According to reports, the decision to jack up the rate of employer’s national insurance (NI) to 15% has delayed the prospect of the minimum pension contribution rates going up under auto enrolment.

This is considered one of the key strategies to boost retirement pots. And it’s something that requires urgent attention. Phoenix Group, a pension provider, calculates that a typical 18-year-old could be £35,000 worse off at state pension age if any increase is delayed for 15 years. Something for Bell to ponder as he seeks to prioritise policies.

Bell will also dive headfirst into the pension “mega-funds” project, which seeks to increase consolidation in the defined contribution (DC) pensions market, support the UK economy by channelling investment into UK infrastructure and private equity, which the government hopes will improve savers’ returns.

However, this idea has its critics, suggesting that the projected outcomes aren’t compelling and schemes should be the ones to decide where to invest their members’ money.

Strict IHT regime preferred

A further job awaiting Bell is to progress the government’s proposal to levy inheritance tax (IHT) on unspent pensions. The decision has faced stiff opposition from both savers and pension providers, and the resistance is likely to ramp up this year. The change is scheduled to take effect in April 2027, but there are still elements to be clarified and decided. How the system will work, and how it will impact savers’ loved ones on death, is still largely unknown.

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But anyone hoping Bell may support efforts for a U-turn here are likely to be left disappointed. In his book, Great Britain? How We Get our Future Back, published in June 2024, Bell wrote: “Pension pots also need to be included within taxable estates to avoid a clear incentive for them to be used to pass on wealth tax-free rather than to provide an income in retirement.”

This leaves no doubt to which side of the argument he’s on.

Sticking with IHT, although not strictly concerning the retirement space, Bell recently took to social media to air his views about another key policy announced at last year’s Autumn Budget: reforms to agricultural relief.

On 19 November 2024, in response to backlash from the rural community, Bell said on X that if parents pass on a £3 million house the tax due is £940,000, yet a £3 million farm can be inherited, tax free. “A reminder of significant tax advantage to farmers vs everyone else AFTER these changes,” he said.

One may argue that comparing personal wealth to commercial assets has an apple and pears feel about it. However, it provides a further and recent example that the new pensions minister is on board with a stricter IHT regime.

Triple lock ‘not sensible’

During his stint heading up the Resolution Foundation, Bell made his views on the state pension triple lock crystal clear. He questioned the state pension’s structure, describing the triple lock as “not a sensible mechanism” and called for the government to consider alternatives. Whether Bell’s stance on the policy has shifted since is not yet known, but I imagine we’ll find out fairly soon.

Despite the pensions minister’s previous take on the triple lock, Labour has repeatedly vowed to keep the policy for the duration of this Parliament.

Breaking a manifesto promise is highly, highly unlikely – although some claim the government’s decision to hike employer NI did exactly that. But coupled with the move to means-test winter fuel payments, the triple lock’s short-term future seems secure.

Calls to impose ISA cap

Bell is no stranger to radical suggestions. He once advocated cutting pension tax-free cash from its level of £268,275 to just £40,000. Savers made their feelings clear about potential changes to this element to pension tax in the lead up to last year’s Autumn Budget.

Elsewhere, a couple of years ago the Resolution Foundation proposed the imposition of a £100,000 lifetime cap on individual savings account (ISA) contributions.

Its report titled, ISA ISA Baby, published in January 2023, stated: “Capping the overall lifetime value an individual is allowed to save into an ISA at £100,000 would only affect a small minority of people (thus minimising administrative and economic costs). With rising interest rates, it is projected that the government will be ‘spending’ the equivalent of £2.2 billion per year by the end of 2023 on the foregone income and capital gains tax for people with ISA savings over £100,000. Capping total ISA holdings at £100,000 would reduce that cost by around half to £1.1 billion (before accounting for behavioural changes).”

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An extreme idea indeed. And one that wouldn’t have gone down well with investors who’d saved hard into the tax wrapper over the years and planned to continue doing so.

A recent development shows the government has its sights firmly set on the ISA landscape. Just last week, the Treasury Select Committee launched a call for evidence on whether the Lifetime ISA is fit for purpose. The product’s function as a retirement savings product is one aspect under scrutiny.

Bell will undoubtedly appreciate the scale of the task at hand. And needless to say, to get to the root of the pension landscape’s issues and make the necessary fixes and improvements, his stint must last longer than Reynolds’. A consistent figure at the head of the UK’s retirement policy, driving positive change, is desperately needed.