Millions of pension savers could be offered a pension pot for life, according to new pension proposals unveiled in Wednesday’s Autumn statement.
Chancellor Jeremy Hunt said he would consult on giving employees a legal right to ask employers to pay contributions into a pension pot of their choice so they can keep the same pension pot throughout their career.
Currently, pension contributions are paid into the workplace pension scheme chosen by the employer but this means employees who change jobs several times throughout their working lives often end up with multiple small pots in different schemes.
The ‘pot for life’ model mirrors the Australian system, which has proven successful. However, pension experts have raised question marks over the proposals, noting that the UK has a long-standing employer-based pension system which varies greatly from Australia.
James Carter, head of platform product policy at Fidelity International, said: “A ‘pot for life’ model would radically change the UK pensions market and risk removing the benefits of workplace pensions and the regulatory and governance framework which protects members of workplace pension schemes. We question the extent to which this would improve member outcomes, also because it would disintermediate employers from their role in supporting the financial wellbeing of employees through the workplace.
Carter added: “We strongly agree with the need to address the proliferation of multiple small pots held by UK savers. A key part of tackling this challenge lies with the development of the pensions dashboard and providing consumers with multiple pots a single, consolidated view of their pension wealth.”
Jamie Jenkins, director of policy at Royal London, also expressed scepticism: “Allowing members to choose their own pension scheme sounds like a great idea but, in practice, workplace pensions already offer more investment choice than most people need. And they are highly regulated with capped charges, whereas this change could lead to a pensions system dominated by prolific marketing, higher charges, and ultimately some higher risk pension schemes.
Jenkins said automatic enrolment into workplace pensions had been a huge success, with the relationship between employers and their employees “pivotal” to this. He warned a pot for life model would “significantly undermine” this dynamic by requiring employers to navigate an increasingly complex array of payments to different providers.
“Ultimately, it may disenfranchise the very group of people we’ve relied upon to deliver the successful rollout of automatic enrolment. If we really want to engage future generations in their retirement savings and address the proliferation of small pension pots, we should focus on a digital solution by delivering a fully functional pensions dashboard.”
Jenkins added: “The idea of member choice comes from the Australian pensions system, but if we can learn anything from Australia, it’s the amount they save. The minimum employer contribution is approaching 12%, compared with 3% in the UK. Embarking on a huge project to change the operating model for pensions won’t compensate for this disparity and may simply serve as a distraction, perhaps a decade of distraction. At some point we will need to start facing up to the challenge that we need to save more.”
