One pension pot for life?

The government announced in its autumn statement that it is seeking information from the pensions industry and other interested parties about allowing individuals to have one pension pot for life. This raises some serious concerns and questions as far as MHM is concerned.

Although the move is only a call for evidence at this stage, our first thought is that it appears to be somewhat contradictory in spirit to the aims and intentions of the key policy of auto-enrolment, which has delivered a huge increase in pension scheme membership since its launch in 2012.

The proposal also appears contrary to comments from TPR Chief Executive Nausicaa Delfas, whose blog last month included comments such as “We are now all on a journey towards, fewer, larger, well run pension schemes. It is my firm belief that this will help to deliver better outcomes for savers”. She went on to say “Thanks to automatic enrolment, over the next decade the assets held in DC workplace schemes by over-55s in work, will increase by nearly threefold to £527 billion”, and “Achieving our vision of fewer, larger, well-run schemes that deliver good outcomes by default will require us to change as a regulator”.

We strongly believe that the system of auto-enrolment enables employees to develop an understanding of the benefits of long-term saving and to make their own decisions about increasing their own contributions to achieve their financial goals in retirement. Furthermore, we believe this is best achieved within the structure of a highly regulated qualifying workplace pension scheme.

Potentially, the “pot for life” could allow employees to tell their employer which pension plan they want their contributions paid into. This would increase complexity for employers if they have to pay into a number of different pension arrangements. Even the idea of a central clearing house brings challenges for employers to be confident that the money they pay finds its way to the right place.

It could also be bad for employees, as employers use their scale to negotiate very competitive terms with pension providers, that are likely to be better than the terms that an individual could set up by themselves. And, faced with any number of pension options, will employees have enough information and knowledge to make the right choice for them? Will any hard sell of pensions come with appropriate and effective governance? Will individual arrangements offer value for money, another key policy aim, which itself is now coming under government scrutiny following the autumn statement.

In our view, the idea of one pension pot for life begs any number of questions that will affect employees, employers, trustees and administrators across the entire pensions industry. Further, it does not feel like a priority issue for government or the pensions industry, with planned improvements to the auto-enrolment regime feeling like a far better use of parliamentary time and regulatory resources.

For those of us who have been in the pensions industry long enough to remember the pensions mis-selling scandal of the 1980s and 1990s, we will have to hope that those in the industry who welcomed auto-enrolment a decade ago and can properly see the advantages it brings for employers and employees will speak up as the evidence-gathering process begins.

For further information, contact David Hodgson on 01423 229029 or by email to David.hodgson@sandccarsalesharrogate.co.uk