The government’s proposed Lifetime Pension model will create a ‘more competitive market,, leading to better member outcomes, according to Hargreaves Lansdown.
In the Autumn Statement, the Chancellor announced a Call for Evidence on the development of a Lifetime Pension model. The new model would allow pension savers to stipulate which provider will receive their workplace pension contributions.
According to the government, doing so would help combat the growing issue of small pots that comes with people changing jobs, as well as the issue of lost pensions. Research by Mercia Group found one in four people have lost track of at least one pension in the UK, with almost three million pension pots unclaimed. The estimated combined value of these unclaimed pensions is a staggering £26.6 billion.
Responding to the government’s Call for Evidence, Anne Fairweather, head of government affairs at Hargreaves Lansdown, said that while workplace pensions work well for those who have a limited number of employers in their lifetime, the system does not work well for those who move jobs more often.
“The small pots problem is growing and causes huge harm. We need to arrest the flow of these pots and give people more agency over their money. A Lifetime Pension would achieve this and help providers deliver value for money within a more modern system.
“Having one overarching view of your pension provision can significantly improve retirement decision making. Consolidation is one option for people with more than one pension but with an estimated £26 billion of low pension money washing around the system, it’s clear that more needs to be done.”
Fairweather said the proliferation of small pension pots is also costly to administer and noted that a competitive Lifetime Pension market can bring down costs for both providers and members.
She added: “Implementation will take time. It will require robust rules and infrastructure around who qualifies as a Lifetime Pension provider and the mechanism to support employers to pay contributions to different schemes. However, the outcome will be a more competitive system, more centred on what members need.”
