The Social Market Foundation (SMF) has proposed the phased introduction of ‘member choice’ to help reduce the number of small, deferred pension pots and act as a bridge to the government’s pot for life policy initiative.

Report author, Michael Johnson, argued that the government’s pot for life model should be achieved through member choice, whereby members of workplace pension schemes would be able to choose their pension scheme and provider into which both their employee and employer contributions are paid.

The report suggested that member choice be implemented in two stages: Individuals would be given the right to choose where their contributions are paid into by their current employer, followed by a savers’ chosen provider being able to become their default and automatic arrangement.

Johnson stated that this would give people control over their workplace pension savings and engender a sense of ownership, therefore driving engagement with the pension system and increasing pot consolidation.

Furthermore, he argued, competition for pots amongst providers would improve value for money, leading to larger pots and, ultimately, increased retirement incomes.

The report stated that a change of employer would be less likely to spawn a new pot under the proposals, as employees would “naturally continue to use their chosen pot”.

Any potential destination pot should be required to meet auto-enrolment’s qualifying scheme criteria, notably in respect of minimum contributions, member protections, and access to a charge-capped default investment option.

While the report welcomed the government’s proposal for multiple default consolidators to help address the small pots issue, it emphasised that adopting this proposal alone would fail to stem the ongoing annual creation of new small pension pots.

“The introduction of member choice, focused on arresting the ongoing flow of new small pots, would complement the DWP’s proposal for consolidators to help reduce the existing stock of small deferred pots,” Johnson commented.

“Both initiatives should be viewed as enhancements to, and natural evolutions of, the auto-enrolment regime.

“Member choice would also represent a significant stepping stone towards a single (pensions) pot for life, facilitated by common sense and digital capability. Simplicity to the fore.”

Commenting in the foreword of the report, Pensions Minister, Paul Maynard, said: “The SMF’s report provides an interesting perspective on the benefits of member choice and a single pot for life approach.

“I would encourage all of industry to engage in this discussion and respond to the Department for Work and Pensions’ call for evidence on the matter – to help inform the development of a longer-term pensions policy.

“My objective will be to ensure that the interest of savers and their outcomes in retirement remains at the heart of our decisions.”

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