Savers at risk from UK’s pension ‘pot for life’ plan, industry leaders warn

Critics say government proposal for single, career-long retirement funds could leave individuals worse off

A proposed shake-up of the UK’s pension market to give millions of workers the right to choose a retirement “pot for life” risks leaving savers worse off, industry leaders and unions have warned.

In last year’s Autumn Statement economic plan, the government issued a call for evidence on a “lifetime provider” model, which would allow consumers to stick with one pension pot throughout their career.

Currently employers are obliged to pick a pension scheme for the workforce and put workers into it, with legal minimum levels of contributions. Employers are not obliged to pay into a pension plan chosen by their workers.

The government argues that present arrangements, in place since 2012, have led to millions of small pension pots building in the system, as workers change jobs over their careers.

Responses to the call for evidence, which closed on Wednesday, mostly warned the shake-up could backfire for savers.

“The government’s proposal risks making the situation worse by placing more responsibility on savers,” said Paul Waters, head of defined contribution markets with Hymans Robertson, a professional services firm.

“Many defined contribution scheme members lack the financial education and confidence to choose their own pension provider. The pot for life model risks members making poor decisions based on the cheapest or best marketed solutions, rather than those offering the best value for money.”

In its response, the Society of Pensions Professionals, an industry body, raised “grave” concerns about the lifetime provider model.

“Severing the employer link and putting all the decision-making burden on savers could lead to suboptimal decisions, as well as reducing market innovation and competition,” it said.

The government has said a lifetime provider model could see British savers adopt a system like that in Australia, where the pension pot follows the member when they change jobs.

The Trades Union Congress, the umbrella body for unions representing 5mn workers, branded the proposal a “dangerous gimmick” that could “expose workers to higher costs and lower pensions, with low earners the most likely to end up worse off in retirement”.

PensionBee, a pension consolidator, was one of the few pension providers to express public support for a system shake-up.

“There are clear consumer and industry advantages to having one pension pot that workers can choose for themselves,” said Becky O’Connor, director of public affairs at PensionBee.

Source: FT