There have been further lukewarm responses to government proposals to introduce a ‘pot for life’ model in workplace pensions, giving employees the right to choose their own provider.
In its response to the Department of Work & Pensions consultation on this issue, which closes today, Standard Life described the plans for a lifetime provider model as “intriguing”, but it says there are significant hurdles to implementing this, suggesting the Government should focus on other changes to the pension system first.
Standard Life’s managing director of workplace Gail Izat says: “Realistically this is a long-term initiative that will require a great deal of groundwork before it is made a reality.
“There are other changes we would like to see prioritised including a greater focus on savings adequacy and the extension of auto-enrolment and an increase in contribution rates in the shorter term”.
Consultancy firm Broadstone described the plans as a “surprising change in policy” adding it could impact work underway to improve value for money on pension, help them invest in a broader spread of assets and improve member outcomes, particularly around retirement decisions.
Broadstone head of policy David Brooks says: “The sudden introduction of the lifetime provider model ahead of the Autumn Statement was a surprising change in policy. The risk is that these changes undermine some of the recent progress, confuse members and create additional, expensive burdens on stakeholders.
“Government should redouble its efforts to get dashboards live, make DC decumulation pathways the norm and grow contributions — that’s the way to build security and better outcomes for members.”
Brooks adds that there should be a period where existing policy initiatives and the direction of travel in the pensions market is allowed to ‘play out’. This would allow pension savers, employers and pension providers to consolidate the positive gains made over recent years, while this incremental approach already has the potential to achieve the Government’s stated objectives.
For example, the warm reception from providers willing to sign up to the Mansion House Compact demonstrated that policy was on the right track to achieving fewer, large providers as well as utilising pension assets to invest in the country.
Izat drew comparison with Australia which has already implemented an lifetime provider model.
She says: “Australia provides the most clear template for this model but even there its introduction came from a less complex market backdrop and was the culmination of many years of reforms that consolidated the pensions system, created a robust data sharing framework and established high quality clearing houses. The UK is already on the journey to creating this infrastructure through other initiatives, like the pensions dashboard and small pots work but they need to be completed before a pot for life system becomes viable.”
Other responses to this consultation have raised questions about how viable this model is, whether it will overburden employers and result in poorer member outcomes, particularly as members may not be best placed to select the most appropriate pension provider, in terms of charges, returns or overall value for money.