Chancellor of the Exchequer Jeremy Hunt has announced plans to offer a pension pot for life in the Autumn Statement 2023.
This will give employees a legal right to require a new employer to pay pension contributions into their existing pot, avoiding the accumulation of multiple pension pots throughout their working life.
Under the reforms, employees would also choose their own pension scheme for automatic-enrolment.
Hannah English, head of DC corporate consulting at Hymans Robertson, said: “Introducing such changes would put an overwhelming amount of responsibility on members to ensure they make the best decision possible in the most informed way. Current lack of understanding of savings vehicles amongst the average saver could result in savers making poor decisions about where their pot is invested, perhaps making decisions based on the cheapest solutions or those that are the most marketed, rather than those that offer the best value for money.
“Education to savers would need to be carefully managed as part of this initiative. Allowing savers to choose their provider would put an additional burden on employers which would then need to be able to capture the chosen provider of their employees and ensure that contributions are correctly directed in the chosen way.”
Jamie Jenkins, director of policy at Royal London, added: “Allowing members to choose their own pension scheme sounds like a great idea but, in practice, workplace pensions already offer more investment choice than most people need. Automatic-enrolment into workplace pensions has been a huge success story and the relationship between employers and their employees is pivotal to this. A pot-for-life model would significantly undermine this dynamic by requiring employers to navigate an increasingly complex array of payments to different providers. If we really want to engage future generations in their retirement savings and address the proliferation of small pension pots, we should focus on a digital solution by delivering a fully functional pensions dashboard.”
Andrew King, retirement planning specialist at Evelyn Partners, said: “If it means that workers will have the option not to join their employer’s default arrangement, and instead to opt for one of several external schemes, it’s hard to see how this could be made to work without significant administrative difficulty and cost, and probably some unintended consequences.
“While this might mean that employees who move jobs do accumulate a number of pots, it’s not clear that this is the best solution to that issue. Employees can currently transfer and amalgamate old pensions pots, often at zero cost, either into their current employers scheme or into a personal arrangement. It means employers could be paying pension contributions to many different pension providers via a spiders’ web of direct debits.”