Chancellor Jeremy Hunt is set to announce pension reforms including a ‘pot for life’, likened to bank accounts where employers can contribute, and workers can easily keep track of retirement savings.
According to a report in newspaper The FT, Hunt is expected to announce reforms in the Autumn Statement tomorrow (Wednesday 22 November) allowing workers to nominate a pension scheme that their employer can contribute to.
It is understood that Hunt wants to push forward with an agenda to unlock billions of pounds of retirement capital to invest in the economy.
Further, it would also stop billions of pounds being “needlessly lost” and ensure people can make the most of their retirement cash.
According to the Pensions Policy Institute, ‘lost’ pensions are worth at least £27bn, as the average employee changes jobs (and pension scheme) 11 times during their career.
The move to a pension ‘pot for life’ would be a similar approach to schemes in other countries such as Australia, The FT reports.
Currently, UK workers may be eligible for auto-enrolment to a scheme chosen by the company.
However, as workers move from job-to-job, it can mean they notch up a number of small pension pots from various employers, making it hard to keep track of.
‘Potential to shake up the industry’
According to online pension provider PensionBee, allowing workers to choose their own pension provider and ask employers to pay into their pension of choice “is a great solution” to the problem of people having lots of pensions from multiple jobs.
Becky O’Connor, direct of public affairs at PensionBee, said: “A pension could become a bit like having a bank account, into which different employers can pay. It’s good for savers, giving them more say over how they want to grow their retirement fund and hopefully a decent solution to the problem of lost pension pots.
“Pot for life has the potential to shake up the industry, bringing what consumers actually care about to the forefront, boosting competition and bringing the way people engage with pensions into the 21st century.”
‘An explosive under the entire workplace pension scheme’
While some have welcomed the potential move, others are concerned about the impact such a major policy change could have on UK workers.
Steve Webb, former pensions minister said it sounds obvious and pro-consumer as individuals can shop around for pensions, but he’s concerned it could very well destroy some of the best features of the current system which “work profoundly to the benefit of those on modest incomes”.
Webb, partner at pension consultants LCP, said: “Workplace pensions are currently a ‘wholesale’ business where employers negotiate a good value deal for their entire workforce. As a result, the average workplace pension charge is currently below 0.5%.
“If the system was fragmented, this bulk buying power of employers would be lost. Top earners would be bombarded with marketing as pension providers sought to ‘cherry pick’ the most profitable business. But the remaining workers would no longer have access to such a good workplace pension.”
He added there’s also a question about how anyone is meant to compare different pensions.
“We’re told not just to look at costs and charges, but are we really expecting consumers to evaluate the different investment strategies of their different pension providers? There are much simpler ways of dealing with the issue of small or lost pension pots, such as the ‘pot follows member’ idea when people changes jobs, rather than putting an explosive under the entire workplace pension scheme”, Webb said.
‘Crucial not to derail pensions dashboard reforms’
Meanwhile, Tom Selby, head of retirement policy at AJ Bell, said: “The biggest sticking point to these proposals is the burden on employers. Currently, UK firms of all sizes – from corner shops to multinationals – are required to set up a workplace pension scheme for their staff. This is already a significant administrative undertaking, but forcing businesses to connect to any pension scheme an employee chooses could significantly increase that burden at a time many are struggling in the face of high inflation and soaring interest rates.”
Selby added that it would mean having “some sort of clearing house” to channel contributions to multiple schemes, which begs the question of cost and who would pay for it.
“With all these unanswered questions hanging in the air, a call for evidence to scope out the pros and cons feels like a sensible approach.
“Given the amount of work that has gone into building Pensions Dashboards – reforms which would allow people to view all their retirement pots in one place, online – it is crucial the pursuit of any new reforms doesn’t derail those plans.”
