'Pension policymakers need caution lest they unravel an entire system'

The challenge has instead been that it has been almost too successful and the infrastructure for making the most of employer and employees' pension contributions has not caught up with the current scenario, which is that many people have generated a plethora of small and not-so-small pots as they move from job to job, and receive pension contributions in a new scheme each time they move.

There has been a realisation for a while that this is very inefficient, especially at the small end, with 12mn of deferred pots of under £1,000. But over the past 12 months or so the pace has stepped up at ministerial level to do something about it.

There are many moves, on multiple fronts, to find ways to reduce the number of pots, and schemes, and benefit from economies of scale.

The value for money framework, in train already for schemes of less than £100mn, would force schemes to disclose their performance, as well as their costs, and if they are underperforming they would have to merge with a better-performing scheme.

Pension dashboards, a long running plan to devise infrastructure and protocols to create platforms allowing people to see what is invested in their name and focus their minds on their assets, and potentially consolidate them, is on the cards.

There is also an imperative for schemes to invest in less liquid assets, a move that some have been asking for, but throws open the question of charges in an environment of super cheap fees, and the question of risk.

If there is one thing that the financial services industry is unanimous on, is that the British public is dramatically ill-equipped to make these decisions.

But it was last November, in the Autumn Statement, that a spanner was really thrown in the works.

Chancellor Jeremy Hunt announced a consultation on a further overhaul of the defined contribution pension space, by instituting the 'lifetime provider' (or pot for life) model.

This would encourage members themselves to choose which fund their employer should put their pension contributions into, with the expectation that it would go into an existing pot.

This sounds fairly reasonable for someone new to the job market, who might be on their second job, and have one pot in existence into which their new employer can make contributions.

For those who have been employed for a number of years, who might have built up several different pots, the question becomes much more complicated, with a requirement for more sophisticated decision-making.

All of these would require the individual to make a choice, for themselves, about where their pension money should go. If there is one thing that the financial services industry is unanimous on, is that the British public is dramatically ill-equipped to make these decisions.

We only need to look at what happened with pension freedoms, when many people who were genuinely trying to make the right decision, and had no knowledge of where to get the right kind of information, let alone advice, ended up putting their money into bad investments.

With the lifetime provider model, this must be talking about the entire working population who are moving jobs, not just those coming up to retirement, who, one would hope, have had a bit more life experience under their belt.

The financial services industry is simply not geared up for this kind of mass exercise, although the Financial Conduct Authority is attempting to devise some kind of targeted support and simplified advice that could involve providers and financial advisers.

To make such a restructuring exercise work, it would need a huge ramping up of the availability of sensible information and advice, at a cost that would work, and some way of clamping down the poor and fraudulent advertising that crops up the whole time on social media and on banner adverts.

It would also need an extremely well thought through plan for regulating such a new environment.

The Department for Work and Pensions has acknowledged some of these issues, saying in its consultation paper ("Looking to the future: greater member security and rebalancing risk"): "We suggest a move to a lifetime provider model should have defaults built into it, to continue to build on the power [of] inertia."

Still, there is deep reluctance in many quarters about pressing ahead with such a plan. Many in the pension industry are fearful for the above reasons, and also because they think it would actually undermine the relationship between the employee and employer, which many see as the key to the success of AE.

Even FCA chief executive, Nikhil Rathi, possibly mindful of his Treasury bosses, said in a recent speech: "The pension pot for life would need a clear delivery road map stretching over a decade. And once that map has been agreed, we will need a period of stability to focus on execution."

Regardless, the department is holding many discussions with those involved in Australian Superannuation, the DC scheme launched 30 years ago, now bigger than the Australian economy, to see how they did it.

The problem is that trying to transplant another country's pension system onto our own as it stands is going to be fraught with problems, given that Australia built their DC pension system from scratch, whereas the UK already has nearly 27,000 trust-based schemes.

However much the lure of the Australian model, and its A$3.2tn (£1.6tn) of assets and however many infrastructure assets it owns, UK policymakers, general election notwithstanding, must proceed with caution to prevent a huge unravelling of UK workplace pensions, which took so much trouble to achieve.

Melanie Tringham is features editor at FT Adviser