Chancellor Jeremy Hunt has announced plans to offer employees a choice on their workplace pension provider.
The new pot for life concept will give employees the ability to select their own pension provider and force their employer, as well as any future employers, to pay their employer and own employee contributions into this chosen pot.
Currently, under the automatic enrolment regime, it is the employer who selects the pension scheme provider for its employees.
The idea is that this will minimise the current issue of the proliferation of deferred small pension pots spread across numerous pension schemes or providers, with future pension contributions to be paid into a single scheme of the employee’s choice, regardless of however many employments they have during their working lifetime.
‘Risk of poorer retirement outcomes’
Kate Smith, head of pensions at Aegon, said: “We recognise that the ‘pot for life’ may appeal to those employees who take a hands-on approach to their workplace pension and wish to select their own pension provider, including use an existing provider, possibly with the help of an adviser.
“However, there are risks of poorer retirement saver outcomes for millions of employees if employers feel they’re no longer at the centre of the pension provision for their employees.”
‘Flaws in the system’
Jon Greer, head of retirement policy at Quilter, also pointed out possible flaws in the plans. He said: “The ‘pot for life’ would likely take a long time to gain traction, not least because the majority of workplace pension savers are largely disengaged. They simply trust that their employer gets on with setting up their pension through the auto enrolment process and they therefore may not be keen to engage with a system that requires them to play a more active role.
“The success of auto-enrolment has been built on inertia. While new data shows 88% of eligible employees participated in a workplace pension in 2022, there is scant evidence that people will engage to the point of making an active choice to stay in a scheme or choose a particular scheme in the first instance. The engagement required may have no basis in reality unless the pot moving with a scheme member is the default, and this would require a total overhaul of the current system which doesn’t appear to be part of the plans.
“In addition, to gain traction this ‘pot for life’ proposal would likely have to follow the Australian model whereby the active pot is the member’s pot for life unless they actively choose an alternative provider. It is also unclear whether members would make logical decisions, particularly as we could expect to see workplace pension providers advertising to a member directly to join their scheme.”
