The chancellor, Jeremy Hunt, unveiled plans that could eventually give UK workers one pension pot for life – but there were warnings that it could be an administrative “nightmare”.
The shake-up is aimed at tackling the problem of millions of small pension pots being generated – which often then end up being forgotten about – as savers change jobs during their working lives.
The Treasury said it was launching a call for evidence on a “lifetime provider” model that would simplify the market by allowing savers to ask employers to pay into one portable pension pot. The pot could be moved from one job to the next.
The Treasury said the measure would provide savers with “greater agency and control over their pension”.
Responding to the announcement, Rachel Vahey, head of policy development at investment platform AJ Bell, said: “Some estimates suggest the average worker changes employer around 11 times during their career, with each job hop potentially creating a new pension with a new provider.”
As people move home and carry on with their lives, some of these left-behind pension pots then end up being forgotten about and become “lost”. The Pensions Policy Institute has published research estimating that the total value of lost pension pots increased from £19bn in 2018 to almost £27bn in 2022.
A pot for life would represent the biggest workplace pensions shake-up since the launch of the UK’s automatic enrolment regime in 2012. Under that scheme, millions of people have been put directly into a workplace pension that both they and their employer pay into.
While automatic enrolment has dramatically increased retirement saving, it means many people will build up multiple pensions throughout their career.
Many commentators responded favourably to the plans, as one pension pot is much easier to manage and engage with, but others said it would create a big administrative headache for employers.
Joshua Gerstler, a chartered financial planner at the Orchard Practice, said: “I like the idea in principle, although it sounds like it would be an absolute nightmare to establish.”
Mark Futcher, a partner at the independent consultancy Barnett Waddingham, said: “A consultation brings with it no certainty of change, but even if the consultation results in a positive outcome, making this work would easily take a decade … I won’t be waiting with bated breath for this reform to come to pass.”
