Chancellor pledges to give workers the legal right over where employers pay contributions
Chancellor Jeremy Hunt has announced he will consult on “pot for life” pensions reforms.
In the Autumn Statement today (22 November) Hunt said the government would consult on giving pension savers a “legal right to require a new employer to pay pension contributions into their existing pension”.
The measures – trailed in an article by the Financial Times yesterday – are understood to be similar to the approach taken by countries such as Australia, which introduced so-called “super choice” rules in 2005.
Fidelity International head of platform product policy James Carter said: “A ‘pot for life’ model would radically change the UK pensions market and risk removing the benefits of workplace pensions and the regulatory and governance framework which protects members of workplace pension schemes. We question the extent to which this would improve member outcomes, also because it would dis-intermediate employers from their role in supporting the financial wellbeing of employees through the workplace.
“We strongly agree with the need to address the proliferation of multiple small pots held by UK savers. A key part of tackling this challenge lies with the development of the pensions dashboard, and providing consumers with multiple pots a single, consolidated view of their pension wealth. We have also been deeply involved in considering possible solutions as part of the Small Pots Cross-Industry Co-ordination Group.
“Today’s launch of a call for evidence will enable further discussion and the opportunity to have a complete and robust debate which we welcome.”
Pensions tech provider iPipeline questioned if the move was aligned to savers’ needs and worries. Product strategy manager Paul Yates said: “We have been talking about ‘portable’ pension pots for some time – one that travels with you from job to job. It makes sense for consumers as it would prevent the multi-pot issue. However, I question how well aligned it is to savers’ needs and worries. In our recent retirement research, we found that only 3% of savers had more than five pots and 47% of those asked had no intention of any pot consolidation. I’d be concerned about how employers would respond to the admin burden of the processes involved. It also requires good quality ongoing advice to ensure the right pension is being selection and carried forward.
“More worrying is the disconnect between what savers want in retirement and the reality of where they’re headed. Our research showed that aspiration for retirement was high, nearly half had set an objective to maintain current lifestyle when their careers end, yet 37% don’t even have a target pension pot in mind and of those who do, the average figure is just £223,000 – which will, for most people, be nowhere near enough to meet lifestyle ambition.”
Aegon head of pensions Kate Smith added: “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.
“Pension schemes can be used to as a means to attract and retain employees, as well as helping them to achieve greater financial security for life after work, helping them to retire. Many employers go beyond the statutory auto-enrolment 8% minimum by paying higher pension contributions, and by providing employee support to increase their engagement with pensions.
“The ‘pot for life’ concept may damage this relationship and could lead to lower employer contributions and 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.”
Jonathan Stapleton Professional Adviser