Advisers and providers have outlined concerns with the government's ‘lifetime provider’ model claiming other policy changes should take priority and savers may not be equipped to make decisions.
Consultants LCP argued the reforms represent a “major distraction” from more urgent initiatives such as taking forward the recent legislation on increasing automatic enrolment pension contributions.
It said a ‘lifetime provider’ model coming on top of the creation of an ‘ecosystem’ for pension dashboards and a ‘clearing house’ for micro pot consolidation would create substantial additional costs which would end up being borne by members.
In a consultation last year, which closes today (January 24), DWP proposed that under a pot for life, or lifetime pension model, savers would be given the option to ask a employer to pay pension contributions into their existing pot.
However, LCP argued there were approaches which do not risk undermining existing provision for low and middle earners and stated that a form of ‘pot follows member’ would help to prevent the creation of new small pots.
Laura Myers, partner and head of defined contribution at LCP, said: “The top priority for tackling the under-saving crisis is getting more money going into workplace pensions.
“Yet implementation of legislation that would do just that is currently stalled whilst the government apparently has capacity to do work on a complete restructuring of the whole architecture of automatic enrolment.”
LCP added there was a “risk of adverse outcomes” for those who do not exercise choice, especially if more lucrative higher earners leave a scheme, thereby making the remaining scheme less economic for providers.
Another concern was whether individual savers will be able to evaluate the different pensions on offer to them and whether they will be expected to analyse complex VFM reports.
LCP were not the only ones to raise concerns with the proposals.
Wrong consultation at the wrong time
Tim Box, chairperson of the PMI’s Policy and Public Affairs committee, said this is the wrong consultation at the wrong time and argued any changes as fundamental as these need to be properly thought through.
“The government needs to explain more fully what it is trying to achieve and provide more detail about how it intends to do this,” he said.
“There may be some merit in considering how a lifetime provider system could help connect people with their pensions and provide better outcomes but there are many policy initiatives already in various stages of development which could also achieve these goals.”
Meanwhile, Richard Birkin, partner at Isio was encouraged the government was looking to innovate in the pensions market.
“We believe there’s a lot more that can be done to provide people with good quality help and advice, as well as solutions that help both employers and employees navigate the risks and uncertainties of saving for retirement,” he said.
“While a ‘pot for life’ system has many attractions and could help address some of the challenges facing the industry, there are a raft of government initiatives already in progress which should be given time to bed in before further reforms are contemplated.”
Birkin explained that from the small pension pots solution to pensions dashboards, there is plenty of focus on improving member experience and outcomes and Isio would rather that the government sees the current set of policies to fruition first before thinking about introducing the next set of reforms.
A DWP spokesperson said: “The average worker will have around 11 jobs over the course of their career, meaning they may continue to accrue multiple pension pots.
“This creates a risk of people losing track of their pension savings and creates cost and inefficiency in the system.
“That is why we are exploring if a lifetime provider model could improve outcomes for savers, as well as running a number of industry workshops and attending stakeholder events to get a range of views on the best approach.”
Adviser view
Advisers also have concerns about how the proposals will impact employees and employers.
When asked about the lifetime provider model, nearly two thirds (63 per cent) of the 94 advisers on the Royal London research panel, believed it would make communication more difficult and reduce employer interest in pensions.
Royal London found advisers believed it would make it harder for employers to manage their workplace pension scheme with 67 per cent thinking the impact of sending contributions to numerous providers will be problematic.
When asked whether it was a good idea that existing small pots will be automatically allocated to one of a smaller number of consolidator schemes, only 13 per cent said it was.
While 24 per cent said a pot follows member approach would be better, and 53 per cent were more cautious and saying it will depend how it works in practice and who the consolidators are.
sonia.rach@ft.com
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