- Plans to let workers choose their workplace pension scheme
- But implementing the reform will likely fall to the next government
Chancellor Jeremy Hunt has announced a consultation to reform workplace pensions, with the aim of allowing workers to set up a “pot for life” with a pension fund of their choice.
Pension contributions are currently paid into the workplace pension scheme chosen by the employer, so employees who change jobs often end up with multiple small pots in different schemes, especially in the early part of their careers. Hunt is now consulting on giving people the legal right to ask their employers to pay contributions in a pension pot of their choice, so they can keep the same pot throughout their career.
The new system would be more similar to the Australian “superannuation” system: however, this system has led to the creation of a handful of mega funds, which savers choose from, rather than the multitude of options currently available to UK savers.
Hunt is looking for ways to incentivise pension funds to invest more in the UK economy, which was also the focus of his Mansion House reforms earlier this year. However, it remains unclear how creating pension “pots for life” would deliver that, given a split of providers could mean all are too small to make a meaningful impact.
Tom Selby, head of retirement policy at AJ Bell, also noted that this would be a potentially complicated change to make, especially so close to the next election. “The biggest sticking point to these proposals is the burden on employers,” he said, which would face additional administrative burden if they had to connect to any pension scheme an employee chooses.
“Given the proximity of the general election and Labour’s substantial lead in the polls, there is every chance Keir Starmer’s party will have the final say on whether these reforms ever see the light of day,” Selby added.
Gail Izat, managing director for Workplace at Standard Life, part of Phoenix Group said that “the idea of a pot for life would need careful thought given the practical considerations around implementation and the potential distraction from existing initiatives”, such as implementing the government’s value for money framework, which should help people determine whether their pension offers good value.
Hunt also said he will continue to push for a consolidation of the pensions industry, with the majority of savers in defined contributions schemes having their pots managed by schemes worth more than £30bn by 2030.
