Proposals for a ‘pot for life’ could require complex adaptations, resulting in higher fees for members, a report published by the Pensions Policy Institute (PPI) has warned.

In 2023, the government issued a call for evidence to explore the possibilities of a multiple default consolidator model and a lifetime provider model (also known as ‘pot for life’) to tackle challenges posed by smaller, deferred defined contribution (DC) pension pots.

In a report designed to lay out the potential impact of a lifetime provider model on key stakeholders, the PPI said: “This policy would represent an overhaul of service provision from schemes, employers and the agencies which support them, the cost of which is likely to be significant.”

The report said that proposed changes could bring about market complications with “providers paying large amounts towards marketing, increasing member costs, and larger schemes poaching more profitable members.”

The PPI said that, while changes might bring about improved services for members, those improvements were likely to bring about cost increases, but also an increased need for guidance and advice.

“It will be vital that increases in costs are commensurate with service improvements and member outcomes, if members are to benefit from the new policy,” the report said.

“Members may also require more significant support from guidance and advice services, if they are to be able to navigate a world in which they are being more heavily marketed to, and can no longer turn to employers for information about their pension, particularly as providers will no longer be able to provide employer-specific education and workshops to employees who are all members of the same scheme, which some do at the moment.”

Furthermore, the PPI said firm foundations would need to be laid to ensure its success: “The lifetime provider model may require unified data standards, a robust IT infrastructure and some form of unique identity number to support implementation and avoid unnecessary costs, complexity and mistakes.”

The PPI suggested that holding off on a decision could ensure a smoother transition to a pot for life model.

A pension scheme consolidation agenda is already in motion, it said, and the current plans to amalgamate schemes should result in fewer, larger schemes, potentially rendering a move to a pot for life model simpler to implement.

Commenting on the report, People’s Partnership, provider of The People’s Pension, director of policy, Phil Brown, said: “Pot for life is an idea worth exploring but implies years of radical change for both pensions and payroll.

"That’s not just reform of how money gets paid into pensions, it’s also reform of how pensions are sold and regulated. If pot for life is to work, it comes after the groundwork has been laid by government, industry and regulators over a period of years.”

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