5th December 2023

We've had a few days to start to digest chancellor Jeremy Hunt's plans to consult, albeit with no timescale (especially with the next election on the not-so-far horizon) on what he calls his new “pot for life” pension model. A potential game changer however, for our partner audience and IFAs.

Employees would get the “legal right to require a new employer to pay pension contributions into their existing pension, if they choose”. They would therefore have the choice of the market in terms of providers, not just the employer-chosen facility.

Most agree that auto-enrolment has worked, starting many people saving for retirement with their current employer that had no motivation to do so before.

Now, how about accounting for old pensions, some of which may be effectively 'lost' through employees losing touch/records, from multiple previous jobs in the distant past, many of which were taken out because of auto-enrolment?!

Fast forward, one pension, one thing to control and one set of choices to make with potentially increased competition between providers.

The problem is making it work. Could it place undue burden on employers, particularly the smaller ones, with all the other economic burdens they have at the moment?

The Consultation, which would create a landscape which would force employers to pay employee contributions to a plan, chosen by the employee, would be a huge boost to the SIPP market on platforms and AUM assets for our partners and IFAs.

However, advisers are sceptical; one we asked commented that the vast majority of a workforce will already have at least one pension in force at a minimum - many will have multiple pensions already so although this would prevent employees creating further plans going forward it can’t tidy everything up from day one. Also, if the pot provider is selected by the Government, this prevents free competition and barriers to entry for other providers and could have a huge negative impact. Accountability is called into question - if there is a 'middle' piece of software that distributes payments to individual providers then who would have the liability moving forward if payments are late/sent to wrong accounts etc? Lastly, if money is being sent to individual pension providers they will have to contend with multiple different bank collection accounts for different products - technology will come to the rescue is the hope.

Good news, it's likely that a handful or more of pension/payroll 'hubs' will emerge. This would enable an adviser to encourage corporate and individual clients to select a hub, some will find that their payroll software provider may choose to integrate the pension administration component to create the required hub. The hub would chase missed payments.

Regarding past pensions, if the employee’s employer chooses the hub with potentially multiple pension options, this would allow the provider of choice for the employee and a transfer of past pensions could be swept up.

So as an employer you would send all employees pension contributions to a hub, perhaps owned or associated with the payroll software company. The hub could have links with all major pension providers and would split up the money and data and send it on. 

Regarding charges and competition there are already charge caps for auto-enrolment; the Government will have to amend existing rules. The hub would also need to have a regulatory duty to chase the employer for late payments.

If we assume that likely uptake would be good (any apathy aside), people are now quite used to having the choice of a good range of market funds though several providers via their company-chosen provider.

Employees get peace of mind through control and simplicity - no more multiple emails and logins with passwords lost and forgotten. They gain a greater understanding of exactly what they have got and a greater likelihood they will know and understand what it will deliver for them (sounds like a Consumer Duty must?). Pot for Life? Early days but in theory, bring it on!

Retirement