The pot for life, or lifetime provider, solution to the small pots pension problem could be used as a tool to win over sceptical consumers, experts have claimed.
Tom McPhail, director of public affairs at the Lang Cat said the introduction of auto enrolment had been a success, but had resulted in a proliferation of UK pension pots, 12mn of which were dormant with forgotten pots of around £26bn.
He claimed administering these pots cost the pensions industry over a quarter of a billion pounds a year.
The issue of small pots formed the basis of a discussion at the Pensions Administration Standards Association (PASA) conference in the City of London today (Tuesday 30 April 2024).
McPhail said: “People lose track and agency over their pension because they are forced to join another pension when they change employers.
“The data points to a huge amount of activity of people cashing in these smaller schemes. The fact is people behave differently if they have a large pot, so we have to do things differently.”
But the pot follows member solution, which has also been mooted in government consultations, might also result in problems.
McPhail said: “You are moving a lot of money around the system and you haven’t addressed the agency problem as the employer will still have to choose the pension.”
He added: “The lifetime provider and pot for life - which is the same thing, becomes the employees pension - it gives agency over the pension and that is the lifetime provider pot for life model.”
Streamlining pension paperwork
McPhail said a pot for life solution would require a payroll system with an interface that made it easier for employers to deal with the pensions industry.
He added that consolidation of pensions might mean more investment in technology which would also make it easier to sell a pension to employees.
He said: “In a world of fewer bigger, better run pension schemes, with value for money and consumer duty, I can see a future where there is the capacity to invest in consumer engagement technology.
“It feels a natural progression for people to engage directly in their pension throughout their working life In the same way as happens with banking, in a way that is not possible today.”
Paul Richardson, head of Superchoice UK, said the Australian superannuation model had paved the way for demonstrating how pensions could follow their owners.
He said: “The Australian model has made it easier for consolidation to happen by introducing the concept of choice a lot earlier.”
“Most big funds make it easy for people to bring their funds in and take them out.”
Working with HMRC and dashboards
The panel expressed concern over whether there was adequate infrastructure if, and when, any solution was introduced.
Paul Holland, founder of Beyond Encryption, said it was concerning that it took over a year for HMRC to sort out an electric vehicle tax change at his company.
