22 November 2023
If you are covering the Chancellor’s pensions ‘pot for life’ announcement at the Autumn Statement, please see the following comment from Jon Greer, head of retirement policy at Quilter:
“Changes in working habits mean people who might have had just one or two jobs during their lifetime now tend to move far more frequently and thanks to auto-enrolment are building up multiple pensions, often with little in them.
“The issue surrounding small pots was raised in a DWP consultation earlier this year while Laura Trott was still Pensions Minister, with the idea of a pot for life mentioned as “a more fundamental change that may emerge … but was clearly some way off”. However, Trott appears to have made her mark on the Treasury only a week into her new role, as it is with some coincidence that a ‘pot for life’ proposal, and likely a call for evidence, has now landed in the Chancellor’s Autumn Statement. The idea marries nicely with the Chancellor’s aim of funnelling more money into the UK economy through a concentration of workplace pensions who are able to do so.
“Currently, eligible new employees must be automatically enrolled into a pension scheme of their employer’s choosing. Today’s ‘pot for life’ proposal will change this by ensuring the pension pot can move with the employee from job to job, which would help resolve the small pots issue caused by the current system.
“Though this proposal sounds positive on the surface and will be useful for those members who are keen to take ownership, it has flaws. 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.
“A key concern raised earlier in the year during the original consultation was that businesses may be reticent to adopt this system as it could put additional administration burden on them. However, the legal requirement to facilitate a ‘pot for life’ will mean employers must support their employees looking to take ownership. The current auto-enrolment system is predicated by slick payroll systems, and engagement, time and investment will be required to adjust to this change.
“It is positive that the government is paying closer attention to pensions savings and that it is implementing changes such as the ‘pot for life’, but it is important it doesn’t let its other pensions commitments fall by the wayside. Pensions dashboards have been repeatedly kicked down the road but remains incredibly important to help people locate the £27bn currently held in ‘lost’ pension pots. When, or if, the ‘pot for life’ proposal comes to fruition, savers will still have multiple pension pots to keep track of so this must not be forgotten.
“Though many unanswered questions remain, the introduction of a ‘pot for life’ represents a significant alteration in the world of workplace pensions and will have long lasting impacts on people’s retirement savings.”
