The UK government is pushing ahead with its pension pot-for-life proposals, which will give savers the option to ask their employers to pay pension contributions into an existing pot.
In the Budget today (March 6), chancellor Jeremy Hunt said the government remained committed to exploring a lifetime provider model for defined contribution pension schemes in the long-term.
In the documents accompanying the Budget, the government said it “will undertake continued analysis and engagement to ensure that this would improve outcomes for pension savers, and build on the foundations of reforms already underway, including the Value for Money Framework”.
Andrew Marker, head of retail pensions at Vanguard, Europe, said he was “encouraged” by the proposals as the average worker is expected to have 11 jobs in their working lifetime.
a pot for life scheme is not a short-term fix.Gail Izat, Standard LifeHe said: “Keeping track of multiple pensions is not easy and, in fact, 2.8mn pensions worth an average of £9,500 each are estimated to be lost or forgotten in the UK.
“The move would therefore be a step in the right direction which would give people greater clarity about their retirement savings.
"A pot-for-life would allow individuals the opportunity to take control of their pension, making it easier to plan for the future and to ensure their savings are being invested with their future goals in mind.”
The chancellor first announced in the Autumn Statement 2023 that he would consult to introduce a pot-for-life for workers.
But there have been concerns from the pensions industry that this may not be the best way forward to deal with the small pots issue.
Gail Izat, managing director for workplace at Standard Life, part of Phoenix Group said: “While pot-for-life could complement the current government and regulatory push for fewer, bigger schemes, which could help to ensure customer outcomes are a central focus and underperforming schemes are required to act, a pot for life scheme is not a short-term fix.
“Its successful introduction requires a significant level of planning and preparatory work to overcome the high level of complexity that has been built into our pensions system in the UK over the many decades of constant change to regulation and legislation."
Australian template
According to Izat, Australia provided the most clear template for this model.
However, she said: "Even there, its introduction came from a less complex market backdrop and was the culmination of many years of reforms that consolidated the pensions system, created a robust data sharing framework and established high quality clearing houses.”
Concerns were raised previously by Kate Smith, head of pensions at Aegon, who said it could work well for a minority of higher paid employees who wish to select their own pension scheme, but risks poorer retirement saver outcomes for millions of employees “if economies of scale are lost”.
“Costs are spread across scheme memberships, where those with higher pensions effectively ‘cross-subsidise’ the pensions of those with smaller pensions pots who tend to be the lower paid, enabling them to benefit from lower charges,” she explained.
According to Smith, those left behind, on modest incomes, could face higher charges which means lower retirement incomes.
She added: “The pot-for-life concept ultimately removes employers from the heart of pension saving. This could be damaging to future retirement incomes, if it leads to lower employer contributions and less pension support in the workplace.
“It could also mean fundamental changes to how workplace pensions work today, so the concept needs careful consideration alongside other pension policy priorities – such as the value for money agenda.”
amy.austin@ft.com
