In his Autumn Statement on Wednesday (23 November), Chancellor of the Exchequer, Jeremy Hunt, announced plans to introduce the concept of employees having a single pension pot for life.
Should this come to fruition, the move would mark a significant departure from the traditional model for workplace defined contribution (DC) pensions. Rather than joining the pension scheme offered by each employer they work for, individuals would instead select a provider and pensions arrangement, which they would retain throughout their career. Each employer that they work for during their working life would be legally required to pay into this under auto-enrolment legislation.
As well as giving employees more control over which provider and scheme they choose for their retirement saving, this would also effectively eliminate the problems with small pots and need to keep track of multiple pensions arrangements during an employee’s working life.
In theory, giving staff more choice and control over their pension arrangement sounds like a positive step. Most individuals are likely to be more engaged with saving for retirement if they have had final say on where they want to save and the provider they wish to use. Research published by pensions provider PensionsBee this week, found that over 76% of the 1,000 pension savers surveyed said they would consider opting for the model. Among this group, their reasons for considering this included: the convenience (cited by 55%), the belief it is an easier concept to understand than the current system (43%), and a long-term relationship with one provider might make them feel more engaged with their pension (30%).
But, is the UK population ready for the increased responsibility that would accompany the move to such freedom around pensions choice? Would moving to a pots-for-life model result in the need for more extensive education around pensions and employees’ financial commitments in order to result in the best possible outcome at retirement? One of the factors behind the success of pensions auto-enrolment has been employee inertia, so would employees remain sufficiently engaged with the pension throughout their working life to take action should their fund perform poorly, or if they do not receive the level of service they require from their chosen provider?
Some in the industry have also raised concerns about the additional burden this would place on employers and payroll providers which would be required to pay contributions to multiple pension providers.
At this stage, plans for a lifetime provider model are still very much in their infancy and there is a great deal that needs to be finalised before these can come to fruition. I’ve no doubt many in the industry, myself included, will be watching its progression with interest.
Debbie Lovewell-Tuck
Editor
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