Chancellor Jeremy Hunt will consult to introduce a “pot for life” for workers as he pushes forward with an agenda to unlock retirement capital for economic growth.
In the Autumn Statement today (November 21), Hunt said: "I will consult on giving savers a legal right to require a new employer to pay contributions into their existing pot.
“This would give savers one pot for life.”
Currently, employers are required to enrol eligible new staff into a retirement scheme, chosen by the company.
This has led to employees ending up with multiple small pension pots as they move jobs and switch to their new employer’s scheme.
However, today, Hunt announced that workers will be given the right to nominate the pension scheme that their employer pays contributions to.
Claire Trott, divisional director for retirement and holistic planning at St James's Place, said: "The devil will be in the detail here, but it could be a real admin headache for employers when we only just have automatic enrolment all settled in nicely.”
Trott said the call for evidence on the proposed “pot for life” is an interesting concept and could be a real benefit to those that want to move jobs and keep all their benefits in one place.
It also helps those who already have substantial funds and want to ensure they don’t have to sweep their savings into one pot on a regular basis.
But “the administrative burden” of paying pension contributions to a variety of different providers is likely to be a headache that employers don’t need.
“It also remains to be seen how this could work with the auto enrolment regulations currently in force,” she said.
“It is safe to say that time and care should be taken to consider all the options, pros and cons of such a scheme where we already have such great uptake in savings since the introduction of auto enrolment."
Likewise, Jamie Jenkins, director of policy at Royal London, said 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,” he said.
“Automatic enrolment into workplace pensions has been a huge success story and the relationship between employers and their employees is pivotal to this.”
Jenkins argued that 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,” he said.
“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.”
He explained that the idea of member choice comes from the Australian pensions system, but said the amount they save is what we need to learn from them.
“The minimum employer contribution is approaching 12 per cent, compared with 3 per cent 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.”
sonia.rach@ft.com
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