- Chancellor Jeremy Hunt will explore reforms to allow savers to choose their own pension scheme for automatic enrolment in tomorrow’s Autumn Statement, the FT reports (Source: Jeremy Hunt to offer UK workers ‘pot for life’ in sweeping pension reforms (ft.com))
- Under current rules, UK firms are required to set up a pension scheme for employees that meets certain minimum standards
- This means many people will build up multiple pensions throughout their career, with a growing risk those pots become ‘lost’
- Advocates of ‘pot for life’ reforms argue allowing employees to choose their own auto-enrolment scheme would help solve the £27 billion lost pension pots problem (Source: Briefing Note 134 – Lost Pensions 2022: What’s the scale and impact? (pensionspolicyinstitute.org.uk))
- However, questions remain over the cost of implementing the proposals, which would potentially require businesses of all sizes to link up with dozens of different providers
- Pensions Dashboards remain the most obvious solution to connect savers to their pension pots and ultimately enable more people to consolidate
Tom Selby , head of retirement policy at AJ Bell, comments:
“Although contribution rates remain too low, automatic enrolment has been successful in getting millions of people saving something for retirement. That success has, however, also exacerbated the challenge of people losing track of their pensions. Some estimates suggest the average employee changes employer around 11 times during their career, with each job hop potentially creating a new pension scheme with a new provider.
“The latest estimates suggest ‘lost’ pensions are now worth at least £27 billion, a figure that has spiralled in recent years and is likely to keep heading northwards. Advocates of ‘pot for life’ reforms argue allowing savers to choose their own workplace pension scheme – and then nominate that scheme to receive their contributions when they switch jobs – would help address the problem of lost pensions. Employees would also potentially benefit from greater choice and flexibility, while the broader auto-enrolment market would be subject to competitive forces that are comparatively weak at the moment.
“The biggest sticking point to these proposals is the burden on employers. Currently, UK firms of all sizes – from corner shops to multinationals – are required to set up a workplace pension scheme for their staff. This is already a significant administrative undertaking, but forcing businesses to connect to any pension scheme an employee chooses could significantly increase that burden at a time many are struggling in the face of high inflation and soaring interest rates.
“Some sort of clearing house would therefore be needed to channel member contributions to multiple schemes, with slick processes so firms are able to easily connect. That won’t come cheap, so the next obvious question is how much could that project cost and who will pay for it?
“With all these unanswered questions hanging in the air, a call for evidence to scope out the pros and cons feels like a sensible approach. 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.
“Given the amount of work that has gone into building Pensions Dashboards – reforms which would allow people to view all their retirement pots in one place, online – it is crucial the pursuit of any new reforms doesn’t derail those plans.”
The Pension Tracing Service is a useful tool to locate missing pensions, and some providers also may be able help.