Pensions industry experts expect that the government’s pot for life proposals will be confirmed in the upcoming Budget and have expressed their desire for auto-enrolment reform to be included.

Chancellor, Jeremy Hunt, will deliver his Budget speech tomorrow (6 March), and has already proposed pension reforms that will see defined contribution (DC) schemes required to disclose their UK investments and stop underperforming schemes from taking on new business.

Pot for life

Alongside this, Hunt is reportedly set to confirm the government wants to push ahead with its pot for life proposals, which will give pension savers the option to ask a new employer to pay pension contributions into their existing pot.

Hymans Robertson head of DC markets, Paul Waters, commented: “Pensions Minister, Paul Maynard, has said the Spring Budget might contain an update on the lifetime provider model or ‘pot for life’.

“But there are a number of other initiatives in play to tackle our fragmented pensions system, such as consolidation and the pensions dashboard, which should be given time to deliver first, before pot for life. Only then will we know if we’re tackling the right problem. Radical developments like the lifetime pension model should be longer-term policy considerations.”

Aegon head of pensions, Kate Smith, added that pot for life could work well for a “minority of higher paid employees” who wish to select their own pension scheme, but risked poorer retirement saver outcomes for millions of employees if economies of scale are lost.

“Costs are spread across scheme memberships, where those with higher pensions effectively ‘cross-subsidise’ the pensions of those with smaller pensions pots who tend to be the lower paid, enabling them to benefit from lower charges,” she continued.

“The pot for life concept ultimately removes employers from the heart of pension saving. This could be damaging to future retirement incomes, if it leads to lower employer contributions and less pension support in the workplace. It could also mean fundamental changes to how workplace pensions work today, so the concept needs careful consideration alongside other pension policy priorities – such as the value for money agenda.”

Fidelity International head of platform policy, James Carter, welcomed the government’s engagement with the pensions sector, but expressed concerns that pot for life proposals intend to address issues that existing policy proposals have not yet had a chance to resolve.

“We believe that the lifetime provider - or ‘pot for life’ - model would radically change the UK pensions market, and we have significant concerns on the proposals being put forward,” he stated.

“We question whether it would enable better member outcomes for typical members or deliver the policy ambitions put forward in the call for evidence. More worryingly, the proposals have the potential to undermine the role of the employer in supporting engagement in pensions and the achievements of automatic enrolment (AE).”

Auto-enrolment

Phoenix Group group CEO, Andy Briggs, said the firm hoped the momentum from the Autumn Statement would continue in the Spring Budget.

“There is ongoing activity around expanding the scope of AE, tackling the proliferation of small pension pots and addressing the advice/guidance gap,” he continued.

“However, there is more work to be done, including looking at the level set for default AE savings rates. In what is expected to be an election year, it is important we don’t lose focus on the important issues that support people as they journey to and through retirement.”

Industry experts are hoping that updates on AE policy will be included in the Budget, with AJ Bell head of public policy, Rachel Vahey, commenting that the government had pledged two key reforms to AE, but it was yet to set out a timetable for introducing the changes.

“There is no better opportunity to issue the necessary consultation and start the countdown clock for implementation,” Vahey argued.

“Lowering the minimum age at which someone first qualifies for AE from 22 to 18 will capture millions of savers from an earlier age. Likewise, removing the lower earnings band could significantly boost how much people save for retirement – particularly those who don’t earn much, including part timers and women.

“On the other hand, the government are clearly aware the measures will increase the cost of employer pension contributions paid by UK companies, big and small. There are also some concerns about an increase in contributions leading to a rise in employees choosing to opt out, so it is right to consult on the detail behind these plans.

“However, the government now needs to make good on its promises, over six years after agreeing to these changes and five months after the original act has passed. It now urgently needs to take the next step to helping more people save more money in a pension and consult with the industry and others on how to make that happen.”

Waters also expressed desire for new AE thresholds and eligibility implementation dates to be included in the Budget, arguing that employers and providers were unable to plan effectively without a clear timetable for implementation.

“One concrete reform I would love to see is the introduction of AE credits for carers, which would help reduce the gender pensions gap for a more equitable pensions system,” he continued. “And the government needs to set out a plan to deliver adequacy from DC, phasing higher contributions by default to at least 12 per cent and reforming the earnings thresholds to be inclusive.”

State pension

Confirmation of the continuation of the triple lock and the confirmed abolition of the lifetime allowance were also expected in the Budget, with AJ Bell director of public policy, Tom Selby, commenting that while the triple lock was clearly seen as a “vote winner”, the government needed to “come clean” about the aim of the policy and the future of the state pension more broadly.

Advice/guidance boundary

Selby added that while the Budget will likely come too soon for any significant update on the advice/guidance boundary, the Chancellor could still use the Budget to signal the government’s continued commitment to the project.

“It would be good to see the government support progress on clarifying the advice/guidance boundary," added Waters.

"Implementing the targeted support proposals in a comprehensive way as quickly as possible will enable the industry to much better support people who need help with their pensions but financial advice is not practical.”

Wider pensions policy

Hymans Robertson partner, Calum Cooper, said that while Hunt had very little room for manoeuvre, there were pension reforms that the government could make that cost nothing but “just require conviction”.

“For example, we know risk sharing can provide a huge ‘boost’ to pensions for the same money, while encouraging DB surplus to be deployed to improve adequacy and stimulate sustainable growth could be part of reviving DB and re-connecting generational wealth,” he said.

“I want the government to be bold and make a statement of intent to re-instate the pensions ‘social contract’ to reconnect the generations. That would transform adequacy.

“We need to restore co-dependency, aligning the need of the next generation to save more with the wealth accumulated by previous generations. Such a transformation for prosperity requires long-term thinking and innovative product design, and action. It would be a bold and confident move for the government to launch an independent pensions commission with this clear statement of intent.

“In the near term, a commitment to reforming TPR’s statutory objectives to encourage open DB pension schemes to thrive would be a great help.”

---