Call for evidence response
Looking to the future: Greater member security and rebalancing risk
26 Jan 2024
Contributing Authors
In the 2023 Autumn Statement, the Chancellor, Jeremy Hunt, called for evidence on introducing a ‘lifetime provider model’. Under the proposed model, employees would be given the option to ask a new employer to pay pension contributions into their existing pension pot rather than a pension arrangement selected by the employer, meaning that pension pots could move with employees as they change jobs during their working lives. Similar approaches are already taken by countries such as Australia.
Our own response to the consultation can be viewed here.
Our view
While we remain open minded on the potential attractions of a lifetime provider model, we do have a number of concerns and believe that there are currently bigger priorities facing the pensions industry and members that should be tackled first. We believe that cross party cohesion is critical for effective medium to long term policy implementation.
We do see the merits of a lifetime provider model which could help to resolve the small pots issue caused by the current system and could help to drive up members’ engagement with their pension and give a clearer picture for retirement planning. However, we must recognise that the majority of pension scheme members are disengaged with their pension and lack the financial education to choose from too open a range of pension provider candidates. We also have concerns on how resulting provider pricing behaviours could disadvantage lower income groups vs. today’s collective pricing.
For a lifetime provider model to be a success, a robust administration system will need to be developed and there would need to be further consolidation in the pension provider market to ensure that members can choose an appropriate, high quality pension arrangement. Implementing a successful lifetime provider model will require a significant investment of time and resource within the pension industry which would perhaps act as a distraction from more critical problems facing the industry and members that we believe should be tackled first. We believe that the primary focus should be on addressing the savings adequacy challenge that exists in the UK today with DC savers, and completing the major projects which are already underway, for example, the Value for Money framework, the development of a small pot solution and the implementation of the Pensions Dashboard, where such projects may bring solutions which could limit the need for a lifetime provider model or enable a route to its simplification.
The most notable feature of provider models such as Australia’s system is in relation to the amount their members save and their adequacy outcomes. In Australia, the minimum employer contribution is 11% (increasing to 12% in 2025), compared with 3% in the UK. The lifetime provider model does not tackle the savings adequacy challenge and will perhaps act as a distraction to addressing this and risk exacerbating the issue with a shift to more responsibility placed on savers.
We strongly welcome policy engagement on longevity pooling and we see credible alternative approaches for introducing this more swiftly to members. Overall, we therefore believe that the decision of a lifetime provider model is a possible later step to be considered in the longer term.
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