Government proposals to introduce lifetime provider models into the workplace pension system would remodel how the market currently works, the Association of British Insurers (ABI) has cautioned.
To tackle the growing number of small pension pots and increase engagement, the government has suggested introducing lifetime provider models through two methods: member choice and pot for life.
- Member choice would give employees the right to ask their employer to pay their contributions into a pension pot of their choice.
- Pot for life would mean employees stay in the first pension scheme that they started saving into at the beginning of their career, unless they proactively opt to move.
Responding to the Government’s call for evidence on lifetime provider models, we’ve highlighted that both methods would be a significant departure from how the automatic enrolment system currently works. Crucially, automatic enrolment through the workplace was primarily set up to help those who were not saving into a pension, many of whom were lower paid people. It is therefore very important that the real-world market impacts of these proposals for savers, providers and employers are thoroughly scrutinised and understood. We’ve commissioned external research to analyse how the proposals could affect workplace pension dynamics and hope to publish this in the spring.
Lifetime provider models are attractive and could deliver a much-needed step change in pensions engagement by creating a greater sense of personal ownership of pensions, as well as reducing the number of pension pots. However, the pensions dashboards project, value for money framework and default consolidators will already increase engagement, reduce the number of small pots and ensure all schemes are offering good value. These should be implemented first before layering further change on top.
Moving to lifetime provider models would be a decade-long project. In order for them to work effectively for savers and minimise the burden for employers, they would need significant new investment in central infrastructure. The experience with the pensions dashboards project illustrates that wholesale changes to the UK’s pensions architecture are not a trivial undertaking, particularly where IT infrastructure changes are required.
“Any new policies must be clear on how they will affect the current system and improve outcomes for all savers. We must not lose sight of the great success of automatic enrolment, while acknowledging there are key reforms already underway, such as pensions dashboards, that need to be completed.”
“Beyond small pots, the government and industry also needs to tackle the UK’s under-saving crisis and address the fact that the current workplace pension system does not work well for the self-employed.”
Rob Yuille
Head of Long-Term Savings Policy at the ABI
“Lifetime provider models are attractive because they could help tackle low pension engagement. But before Government re-engineer automatic enrolment, much more analysis is needed to understand the real-world impact of the proposals on savers, employers and pension providers. Our forthcoming external research will help build that evidence base.”
Yvonne Braun
Director of Long-Term Savings Policy at the ABI
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