Article by Phil
Lifetime pension planning might be about to get a boost.
In the Autumn Statement (22/11/23) the Chancellor announced that there would be a consultation on the so called “pension pot for life” scheme.
This is a proposal to allow individuals to nominate a particular pension provider for their employer contributions. They would continue to use this provider as they moved jobs, which would help eliminate the current problem with lost pension pots. A problem which has become worse since auto enrolment.
However, some think that this would cause problems for employers.
Currently they set up their own schemes for auto enrolment for all employees. Under the proposals they would need to have arrangements with every pension provider according to their employee’s preference. Employers argue that their current schemes are designed to offer low charges because of the economies of scale involved. Having to pay into individual schemes might mean that employees face higher charges.
It may also open the door to pension companies specifically marketing to high earning employees, trying to secure their business. Some are concerned that some higher risk pension schemes might be encouraged which could cause problems.
Pension Wise the government’s pension information service looked at initial reactions to the possibility of lifetime pension planning using the pot for life. They found that:
- Only 5% thought that it was a bad idea.
- Over 75% said that they would certainly consider it with
- 55% saying it seemed like a convenient idea.
- 30% thought it would make them more connected with their pension and
- 30% thought it would help them to manage their pension fees and charges
- 25% said they liked the idea of being able to choose
All these seem like very positive initial responses. The government will be consulting widely on the options, but if it appears popular it may well gain momentum. It may also spur the development of the long-awaited pension dashboard.
It’s likely that those who already have a lifetime pension planning adviser are likely to benefit least as they will probably already have a single pension scheme provider. But with 20% of people saying they wouldn’t use an adviser even if it was free, it might be very beneficial for them to have everything in one place.
Pension Providers are worried that it will increase competition and stop them running efficient large scale employer schemes.
The changes would affect millions. Current figures show that 20.4 million employees were enrolled in a workplace pension scheme. That represents almost 90% of workers who are eligible for auto enrolment. In total workers save £115 billion a year into their pensions.
Only 1% of workers each year make the active decision not to save into their pensions.
As the research tells us time after time, people do not save enough for their retirement. The latest one from Close Brothers found that:
- 32% of over 55-year-olds have delayed their retirement since 2020.
- 41% of over 55’s think that they won’t have enough money in retirement.
- 25% don’t think that they are on track to be able to retire.
- 10% have no retirement plans in place at all.
- Over 40% would like to have pension advice, but less than 20% will get any advice
That’s a lot of concerns about lifetime pension planning.
