Autumn Statement: Pension 'pot for life' - what it means for millions of employees and employers

Savers could be given the right to pick the pension scheme that their employer pays into, under proposals outlined by the Chancellor.

Workers have been pressured into saving more money more regularly to provide for their retirement.

The move, which has been put out to consultation, would allow UK workers to adopt the same approach taken by countries such as Australia. The so-called “pot for life” could offer simplicity for savers, but raises some questions for employers. Research from the Pensions Policy Institute last year estimated that there are 2.8 million lost pension pots due to people losing track of old pension policies.

Kate Smith, head of pensions at Edinburgh-headquartered Aegon UK, said: “Currently, under the highly successful automatic enrolment regime, it is the employer who selects the pension scheme provider for their employees, often with the help of an adviser. The new pot for life concept will give employees the ability to select their own pension provider and force their employer, as well as any future employers, to pay their employer and own employee contributions into this chosen pot.

“We recognise that the pot for life may appeal to those employees who take a hands-on approach to their workplace pension and wish to select their own pension provider. However, there are risks of poorer retirement saver outcomes for millions of employees if employers feel they’re no longer at the centre of the pension provision for their employees.”

She added: “Many employers go beyond the statutory auto-enrolment minimum by paying higher pension contributions, and by providing employee support to increase their engagement with pensions. The pot for life concept may damage this relationship.”

Helen Morrissey, head of retirement analysis at investment platform Hargreaves Lansdown, said lifetime pensions would give people the “power to manage their financial futures”.

She added: “With people moving jobs much more frequently, they will be less likely to lose track of pensions from previous employers and having an overarching view of what they have accumulated can help them make more informed retirement decisions. Research from the Pensions Policy Institute last year estimated there are around 2.8 million lost pension pots, totalling over £26 billion washing around the system. This is all money that could be used to boost people’s retirement income and yet it’s at risk of not doing so.

“There will, of course, be administrative challenges to be faced in terms of getting the systems in place to ensure contributions are paid to the right pension, but payroll solutions already exist and can be adapted to meet these challenges.”

Andrew Tully, technical services director at Edinburgh-founded fintech firm Nucleus, noted: “To make meaningful positive change to long-term savings habits, our recent Retirement Confidence Index highlights we need more people who save more into their pension, to understand why they are saving and what for, and are empowered to save in an environment of trust and stability. It is worth exploring whether a pot for life can help achieve those aims.

“But we need to make sure any solution doesn’t make life overly difficult for employers. The cost of the IT required to power this development also needs to be considered carefully to make sure it doesn’t outweigh any positive benefits which may arise.”

Brian Byrnes, head of personal finance at Moneybox, added: “We believe this could empower more people to actively start planning for retirement earlier in life.”