There was support for the government’s controversial ‘pot for life’ proposals from Hargreaves Lansdown — who claims this could address the problem of lost pensions, particularly among a more mobile workforce.
The comments were made in response to the Department of Work and Pensions call for evidence on this lifetime provider model, which closed yesterday.
Many pension consultants and providers have been critical of these plans, which would give individuals the right to choose their own provider for their workplace pension.
However Hargeaves Lansdown — which as well as running a workplace pension proposition has a large retail platform, offering Sipps and Isas — says these measures could combat the proliferation of small pots that comes with frequent job changes. It also adds that this should result in fewer ‘lost’ pensions.
It says that having an overarching view of pensions can help people make better decisions, leading to better member outcomes.
Hargreaves Lansdown head of government affairs Anne Fairweather says: “Workplace pensions work well for those who have a limited number of employers in their lifetime. However, this system does not work well for those who move jobs more often. The small pots problem is growing and causes huge harm.
“We need to arrest the flow of these pots and give people more agency over their money. A Lifetime Pension would achieve this, and help providers deliver value for money within a more modern system.”
She adds: “Having one overarching view of your pension provision can significantly improve retirement decision making. Consolidation is one option for people with more than one pension but with an estimated £26bn of lost pension money washing around the system, it’s clear that more needs to be done.
“The proliferation of small pension pots is costly to administer. The economies of scale brought about by a competitive Lifetime Pension market can bring down costs for both providers and members.”
She adds that implementation will take time. “It will require robust rules and infrastructure around who qualifies as a Lifetime Pension provider and the mechanism to support employers to pay contributions to different schemes. However, the outcome will be a more competitive system, more centred on what members need.”
Other pension consultants and workplace pension providers have argued that these proposals may result in poorer member outcomes. They argue the lifetime provider model would be an administrative burden for smaller employers and could lead employers to scale back AE contributions to minimum levels. Many also argue that employees are not best placed to pick the most appropriate scheme, and could be swayed by companies with larger marketing budgets to switch to higher-charging or poorer value schemes.