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Pot-for-life posed to solve UK’s pensions problem

Employees could be given the power to choose their own pension provider in a move that could see the end of staff having to close one pension down and start a new one every time they change jobs.

A Ten Minute Rule Bill will be read in parliament today (7 March) and proposes to give staff the right to require their employer to pay contributions into a pension of their own choosing, rather than it going into a pension chosen by the company.


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Writing for Conservative Home, bill sponsor, Anthony Browne, MP for South Cambridgeshire, and chair of the Treasury Select Committee said: “My proposal would allow people to build up a pot-for-life, and they would choose the provider.”

He described the proposal as a “small reform that could, over time, be revolutionary, because if an employee moves jobs, they can keep the same pension, and get the new employer to pay into it, rather than being forced to set up another one.”

The move, he argued, would end the scourge of lost pension pots that staff either forget about, or find difficult to recover years down the line.

But while there is theoretical support for the idea of a single pension pot, most urge caution.

Speaking to HR magazine, Andrew Tully, technical director at Canada Life, said: “As an overall concept, the idea is good, but there’s a risk that the individual involved will not be able to find the best solution that fits their circumstances.

“Employers tend to have greater bargaining power, and so can often negotiate much better deals for staff.

Ian Bird, partner at Secondsight, had concerns about practicality.

He told HR magazine: "It's a lovely idea, but completely impractical. The problem that it's trying to fix is the wrong one. Employees should instead be looking at how to identify which provider they choose when they come to retire, while in the meantime paying into the employer's default fund.

"Lots of employers are now running financial education, but how can they do this, all their staff have different providers?"

Jonathan Watts-Lay, director of Wealth at Work, also said the proposal could be an administrative nightmare for employers.

Speaking to HR magazine he said: “While the problem of small pots is a longstanding one, there’s already ‘pot-follows-member’ initiatives that employees can access. Meanwhile, for employers, the prospect of having to pay into multiple different pension providers could be administratively burdensome.

“When pension dashboards arrive, people will at least be able to see all their various pots, and be able to consolidate them in due course if they want to. Yes, this has now been delayed, but a pot-for-life-type response may not be the right answer. A new employer might offer an employee a much better pension than what they already have.”

Ahead of last October’s National Pension Tracing Day, data released by The Pension Policy Institute revealed there were ten of billions of pounds’ worth of lost pension pots that employees are missing out on as a result of closing down pensions and opening new ones each time they change jobs.

It found that since 2018, the value of lost pension pots in the UK had risen by 37%, to reach a total of £26.6 billion. More than 2.8 million pension pots are considered lost, an increase of 75% over the last four years.

Browne said: “It is estimated there are now 1.6 million pensions that are lost.”

In a further attempt to remedy the problem, the government is working on Pensions Dashboard Programme which seeks to provide a centralised service for people to find and interact with their state, employer and private pensions. 

Looking into further pensions reform, on 3 March a private members bill called for the removal of minimum earning thresholds before employees can start paying into a DC pension, and reducing the age contributions can be made from 22 to 18.