Pensions could become more like a bank account, into which different employers have to pay, an expert has suggested, following reports that a shake-up is set to be unveiled in the autumn statement.
Measures could be outlined in a call for evidence on Wednesday, potentially enabling workers to nominate the pension scheme they want their employer to pay into, according to the Financial Times.
Currently, employers automatically place workers into a scheme that has been selected by the company.
When someone moves from job to job, this can create multiple pension pots, with some potentially getting lost.
Becky O’Connor, director of public affairs at PensionBee, said a “pot for life” could help people to engage with their pension and boost competition within the industry.
She said: “(A) pot for life is a great solution to the problem of people having lots of old pensions from multiple jobs.
“A pension could become a bit like having a bank account, into which different employers can pay. It’s good for savers, giving them more say over how they want to grow their retirement fund and, hopefully, a decent solution to the problem of lost pension pots.
“‘Pot for life’ has the potential to shake up the industry, bringing what consumers actually care about to the forefront, boosting competition and bringing the way people engage with pensions into the 21st century.”
But former pensions minister Sir Steve Webb, who oversaw the introduction of auto-enrolment, raised concerns that employers’ ability to “bulk buy” could be lost.
He said: “Workplace pensions are currently a wholesale business where employers negotiate a good value deal for their entire workforce.
“As a result, the average workplace pension charge is currently below 0.5%. If the system was fragmented, this bulk buying power of employers would be lost.
“Top earners would be bombarded with marketing as pension providers sought to cherry-pick the most profitable business. But the remaining workers would no longer have access to such a good workplace pension.
“There’s also a question about how any of us are meant to compare different pensions. We’re told not just to look at costs and charges, but are we really expecting consumers to evaluate the different investment strategies of their different pension providers?”
Sir Steve, who is now a partner at consultants LCP (Lane Clark & Peacock), said there are much simpler ways of dealing with the issue of small or lost pension pots “rather than putting an explosive under the entire workplace pension scheme”.
Mark Futcher, a partner at consultancy Barnett Waddingham, said: “A sudden shift to a ‘pot for life’ risks people choosing a sub-optimal pension plan, being swayed by marketing over value, and ultimately exacerbating the UK’s retirement crisis.”
Patrick Heath-Lay, chief executive at People’s Partnership, said: “A ‘pot for life’ could improve the UK’s pensions system or pull it apart, depending on how it’s implemented.
“It’s vital that (Chancellor) Jeremy Hunt explains how the proposed new market for workplace pensions will work, how it will be regulated, and, most importantly, how millions of savers will be protected.
“The international evidence is clear, savers get better retirement outcomes from large, well-run schemes that operate in their best interests.
“The Chancellor needs to show how ‘pot for life’ will continue to build large-scale pension funds that can make strategic investments in the UK and how it will enhance, rather than detract from, the enormous success of automatic enrolment.”