Work and pensions minister Torsten Bell said: “The case for this focus is clear, those retiring in 2050 are currently set to do so with lower private pension income than those retiring today.”

The Pension Schemes Bill aims to provide pension schemes with a wider range of assets to invest in and will allow some to transfer to so-called “superfunds”.

Under the reforms, the local government pension scheme (LGPS) will be consolidated, reducing the current 86 administering authorities into six pools.

Additionally, small pension pots worth £1,000 or less will be brought together into larger pension schemes. The legislation was passed at third reading on the nod and will go to the House of Lords for further scrutiny.

This new initiative will tackle what the government described as the growing problem of small, forgotten pension pots that many people accumulate as they move between employers over their working lives. There are now 13 million of these small pots, holding £1,000 or less, with the number increasing by around one million a year.

Under reforms as part of the Pension Schemes Bill, each individual’s small pots will be brought together into one pension scheme that is certified as delivering good value to savers. Individuals will retain the right to opt out.

The government said this will cut costs for savers and make it easier to keep track of their pensions while boosting living standards and making working people better off. It will also cut red tape for businesses managing the schemes and unlock economic growth as part of the Plan for Change.

Officials claimed it will reduce costs as well as hassle for savers, in time increasing the pension pot of an average earner by around £1,000 – boosting living standards and making working people better off. It will also cut red tape for businesses managing the schemes and unlock economic growth as part of the Plan for Change.

At the Bill’s report stage, Dame Nia attempted to amend the legislation to require increases to pension payments be made annually in line with CPI (Consumer Prices Index) and RPI (Retail Prices Index).

This would apply to the Pensions Service both pre-1997 and after, the MP for Llanelli said.

She told MPs: “These companies have treated pensioners very shabbily indeed, because they are refusing to index the pensions of former employees that were accrued before 1997.

“In other words, people who worked hard to help build up the success of these companies have had no increase for as long as 23 years. Just imagine how much less you can buy with that pension compared to 23 years ago.”

“We know from lots of evidence, the only way the companies will listen is through legislation, and they are multinationals these companies, and in countries where there is a law, there is legislation, in fact, they pay up,” she added.

Mr Bell, who is also a Treasury minister, had earlier said he recognises “the impact of recent years’ high inflation on the value of some pensioners’ retirement incomes”.

“But I also want to be straightforward with the House that we do not support retrospectively changing scheme rules,” he added.

Dame Nia said her amendment would require the indexation to take place from now on, adding: “This is not about some form of compensation for the past, it’s about going forward, trying to future-proof these pensions.”

Labour former minister Liam Byrne had tabled an amendment in a bid to clarify the scope of trustees investment duties.

Mr Bell said legislation will be brought forward “to develop statutory guidance for the trust-based private pensions sector”.

The Bill includes a reserve power which would allow the Government to require large auto-enrolment schemes to invest a set percentage into wider asset classes.

Conservative shadow Treasury minister James Wild raised concerns about the Government’s plan to mandate how pension schemes invest their assets, such as requiring schemes to invest a certain percentage in a particular type of asset class.

He said this power was “fundamentally wrong” and pressed the Government to produce a report on why it was needed.

Mr Bell described the power as a “backstop”, adding: “We do not currently anticipate it will need to be used, and this is precisely because of the industry’s commitment to the Mansion House Accord.”

The pension pots change followed the work of the Small Pots Delivery Group. Their findings, aimed at supporting the design and implementation of the new small pots consolidator scheme, include:

• A Small Pots Data Platform to identify and source the pension pots that could be consolidated.
• A framework setting out the rules a scheme would need to follow to become a consolidator scheme. These would include already being in an Automatic Enrolment qualifying scheme, having a specified level of scale to manage expansion, providing good value for money for their members and providing additional protection for members from flat fee charges.
• Safeguards for savers whose pension pots would be consolidated, which include a member opt-out option.

To watch the debate click here.