"Now the ‘pot for life’ option is seemingly the preferred option without any apparent industry consultation or guidance into the decision-making process."
- Nick Meredith, products director at Equisoft
Chancellor Jeremy Hunt has announced plans to launch "one pension pot for life".
Speaking during today's Budget, Hunt said the plans would give savers a "legal right to require a new employer to pay pension contributions into their existing pension".
At the moment, workplace pension arrangements can differ, but each employer tends to have either its own dedicated scheme or an arrangement with a UK pensions provider – often a big insurer - to provide a defined contribution scheme that all its employees pay into.
Pensions experts have reacted with scepticism to the new rules.
Andrew King, retirement planning specialist at wealth management firm Evelyn Partners, commented: “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.
“It flies in the face of the well-established auto-enrolment system, which simply places employees in the workplace scheme, which their employer has usually contracted from a pension provider.
“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.
“For one, it means employers could be paying pension contributions to many different pension providers via a spiders’ web of direct debts. It’s also quite possible that it would open the door to scammers as employee funds would be leaving the ambit of a single, approved employer-arranged scheme.
“In the Australian workplace system, the pension companies are “superfunds”, all approved by the government and working under the same rules. In the UK, there isn’t the same infrastructure, with currently only one superfund and a plethora of possible pension providers of all shapes and sizes.
“Unless some of these potential pitfalls have been considered, such a bombshell into the auto-enrolment system could be a lot more problematic than, for instance, making it easier for employees to track and roll up their pots into their new employer’s scheme or a personal pension.”
Nick Meredith, products director at Equisoft said: "This is groundhog day for the pensions industry as political interference from on high is set yet again to trump the advice from the sector in dealing with the growing problem of ‘small pots’ pensions.
"The announcement today by the Chancellor is the latest poor political decision from successive governments that has led the pensions industry to start losing faith that any reform of this significant issue will ever be delivered.
"Six months ago, it appeared the Government had decided on the consolidator model. Now the ‘pot for life’ option is seemingly the preferred option without any apparent industry consultation or guidance into the decision-making process.
"For ten years the industry has supported the ‘pot follows member’ solution which is not only better value to the taxpayer but is less complex and more open to competition driving down costs and improving efficiencies.
"We believe that as it stands today this proposal is too complex, risky, expensive and will take significant time to deliver. In the meantime, the small pots problem continues to grow, and consumers are losing real value as their pensions wither away."
Emily Campbell, lawyer at Charles Russell Speechlys, added: “The Chancellor’s ‘pot for life’ reforms are likely to be popular amongst members, who will feel they have more control and oversight of their savings. The reforms also provide advantages to employers, who will be able to offer choice to members without fear of possibly falling foul of auto-enrolment rules banning incentives for auto-enrolment opt-out.
"At the same time, the proposals show that the Pensions Dashboards Programme may not have been sufficient in dealing with the problem of small pots. Further, one wonders how employers can be sure that members will have taken appropriate financial advice – especially given the types of free investment choices offered by SIPPs, which sometimes lead to heavy losses and complaints of misselling.”
