Nearly eight in 10 (78 per cent) workers aged between 25 and 34 with a defined contribution (DC) pension are in favour of a pot for life system, a study by the Social Market Foundation (SMF), supported by Cushon, has revealed.

While 25-34 year olds were the most supportive age cohort, older age groups were also in favour of pot for life on average, with 73 per cent of 35-44 year olds and 69 per cent of 45-54 year olds supportive of the government proposal.

However, the SMF warned that wanting the option of member choice did not equate to wanting to use it, with only 28 per cent of respondents who supported pot for life saying they would actually choose a different provider than their employer’s.

Furthermore, 67 per cent said they liked their employer handling their pension and 48 per cent did not think they needed to actively manage their pension.

In November 2023, the government published a consultation on the lifetime provider model, which would offer employees the option to ask a new employer to pay their pension contributions into their existing pot.

The pensions industry has raised concerns with the proposal, including consequences for market competition, levels of engagement and higher fees.

However, the SMF argued that these issues exist in the current landscape and could be addressed in a pot for life system.

Overall, 72 per cent of workers with a DC pension were in favour of member choice.

Respondents with higher levels of education and existing pension engagement were more likely to be in favour.

The SMF found that pot for life remained popular even when members were presented with the potential trade-offs. For example, only a quarter of respondents were worried about losing employer information and guidance on pensions.

The think-tank noted that higher employee engagement with pensions to secure better retirement outcomes was “not yet resonating” with the public, and urged policymakers to be willing to take further action to support pension savers to move from being passive to being active.

It stated that expecting engagement and take-up to automatically follow on from the introduction of pot for life “would be a mistake”.

To have more engaged members, the SMF said that employers and employees need reassurance that moving to pot for life will not result in any loss of protection, and policymakers need to ensure that lifetime providers are subject to the same regulations that apply to auto-enrolment schemes, such as the value for money framework and the FCA’s Consumer Duty.

Furthermore, policymakers need to understand that while a move to pot for life may stimulate more engagement, the government should not expect it to be a ‘transformative tool’, according to the SMF, and more would need to be done for ‘deep and widespread’ engagement.

“Past success with pensions policy – particularly automatic enrolment – was able to effectively utilise consumer inertia,” commented SMF researcher, Niamh O Regan.

“However, as working habits have changed and people move jobs much more frequently, we now have an issue where an individual’s pension savings are spread over a collection of small pots, and the level of retirement savings is inadequate.

“Member choice can play a role in improving this picture, through stopping the creation of a new pension pot with each job, and ensuring pension savings can accumulate and appreciate in one place, likely leading to better retirement savings. It will also give consumer greater control over what could be their largest financial asset.

“With that said, while moving to member choice rightly reflects changed consumer preferences and working styles, it would be a mistake to assume that consumers will adopt member choice right off the bat. Having relied on consumer inertia for so long – it will take a lot more reassurance and support from government and industry for consumers to make such a leap.”

Cushon director of policy & research, Steve Watson, added: “Inertia has been the biggest success factor for auto-enrolment with millions more saving for retirement without ever engaging in the process. It’s also its Achilles’ heel – yes, millions more are saving, but they are not saving enough and losing track of pension pots as they change jobs.

“Key to improving retirement outcomes for savers is getting them engaged with their pension throughout their whole career – a pot for life is one pension that follows an employee as they move jobs.

“This should go a long way to improve engagement by giving people a greater sense of ownership over one of their biggest financial assets. With all their money in one place, this larger, single pot should retain the attention of savers, and in turn encourage them to actively manage their pension and contribute more.”

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