Exclusive
THAT'S POTTY
Millions of low-income workers could face higher pension charges as ‘pot for life’ plan set to go ahead despite warnings
We explain arguments for and against the government's "pot for life" plan
SAVERS could face paying higher charges on their pensions as major reforms look set to go ahead despite “overwhelming opposition”.
Chancellor Jeremy Hunt is planning to push forward with plans to introduce a “pot for life” for pension savers even though experts have warned it could hike costs for low earners, The Sun understands.
1
The proposals were first floated by Mr Hunt in his Autumn Statement last year, when he issued a "call for evidence" on the idea of savers having a single pension pot or provider throughout their career.
A call for evidence, or consultation, is where the government asks companies that would be affected by a new policy idea for feedback before it decides whether to go ahead with it.
Sources involved in discussions with the Treasury say the chancellor is aware the policy has received a “huge amount of opposition” via the consultation, which closed in January.
Nonetheless, it is understood he remains keen on the idea and is considering how to press ahead with the reforms.
MORE ON MONEY
It's expected he will mention the proposal in his Spring Budget documents this week confirming that the government remains committed to the idea.
However, insiders say the details released will be thin on the ground as there are still three different proposals being kicked about by the Treasury and a final decision hasn't been made.
These proposals include a “member choice” plan, where workers tell their employer which scheme to pay into; a “lifetime provider” model, where workers retain one pension provider for life unless they opt out, and a “pot follows member” plan where one pension pot simply follows the worker from job to job.
Critics have warned the government that going down any of these routes risks increasing the cost of pension schemes for lower earners.
Most read in Money
They say this is because higher earners, who tend to cover the bulk of pension schemes’ admin costs, will flock to a small number of providers, which would force up the charges on smaller schemes for remaining members.
A spokesperson for the Trade Unions Congress (TUC), which opposed the plans, told The Sun: “The government was warned by experts not to go ahead with these reforms.
“The only winners will be the finance and advertising industry as pension schemes spend millions on campaigns to lure savers into higher-cost funds.
“But ordinary workers, who will be exposed to potential scams or see their pensions whittled away by high charges, will be the biggest losers.
“Instead of focusing on helping more people to save for a decent retirement, ministers seem intent on forcing through this gimmick.”
It is expected that while the chancellor will continue to express support for the policy, it may be sidelined over the medium term while the government prioritises urgent reforms.
A Treasury spokesperson said: “Our call for evidence closed on January 24 2024 and we are considering the responses.”
How does my pension work?
When you join a new company, you are usually "automatically enrolled" into its workplace pension scheme.
You then contribute a percentage of your salary towards your pension each month - the minimum is 5% - while your employer contributes a minimum of 3%, unless you opt out.
The scheme levies a charge from your total savings every year to help cover its running costs.
For modern workplace pensions, this is capped at 0.75% of your total pot, although many charge less than this.
However, we revealed last year that some old schemes from before this cap came into effect are charging savers far higher.
If you change jobs, you join a new workplace pension scheme with your new employer.
This has created a situation where some people have several different pensions and there are concerns many struggling Brits have money sitting in old pots that they have forgotten about.
There are an estimated 1.6million "missing" pension pots with an average of £13,000 in each, according to the Association of British Insurers.
Individuals currently have no control over their choice of pension, they end up with multiple accounts and they have no way of putting any pressure on their providers to give them a good service
Tom McPhail
How would the planned changes affect me?
Respondents to the government's consultation who support the "pot for life" plan said it could help prevent this money from getting lost, and providers would be more incentivised to offer a good service.
Tom McPhail, director of public affairs at consultancy The Lang Cat, who backs the reforms, explained: "Auto-enrolment has been a huge success but it also has drawbacks.
"Individuals currently have no control over their choice of pension, they end up with multiple pension accounts and they have no way of putting any pressure on their pension providers to give them a good service.
"The government is right to want to fix these problems, provided they can do it while ensuring that people who don’t make choices still get a good outcome."
"This is a good idea and the government should press ahead."
Becky O'Connor, director of public affairs at Pensionbee, which also supports the idea, added that a pot for life could potentially bring costs down "through increased competition and efficiency".
The main concern raised by those opposing the government’s consultation is that long-term, the changes could end up increasing charges for low earners who aren't engaged with their pensions.
All pension schemes come with charges which cover the running costs. The bigger your pension, the more you pay in fees.
Industry experts anticipate that pension providers will target those with bigger retirement pots who are more engaged with their finances.
People on modest incomes risk being left behind, probably facing higher costs
Steve Webb
If those people are lured away from their existing schemes, this will force those schemes to increase the costs for remaining members, which will eat away at their retirement savings.
Consultancy LCP said in its response to the Treasury: "If, as seems likely, higher earners and those with larger pension pots are targeted by pension providers and are the most likely to be engaged and actively choose to re-direct their contributions, this could fundamentally alter the economics of the workplace scheme for the remaining employees.
"This would leave them with poorer value pensions as fees overall increase to cover the costs those with larger pots picked up."
Former pensions minister Steve Webb, now partner at LCP, added: "The winners will be people with big pension pots who the pensions industry will fight over.
"But people on modest incomes risk being left behind, probably facing higher costs."
This would risk worse retirement outcomes for "millions of employees" according to Kate Smith, head of pensions at provider Aegon.
READ MORE SUN STORIES
Experts say the government should focus on getting existing pension policies over the line before coming up with new ideas.
Tom Selby, director of public affairs at pension firm AJ Bell, said: "It would be better for savers if the government focused on finalising the Pensions Dashboard, which it has been dragging its heels on for years, instead of trying to push complex new policies through."
How do I track down old pension pots?
THE first step is to get together any paperwork you can find relating to your pensions.
This paperwork should show which provider your pensions are with.
If you have lost the details of your pension schemes, you can ring your old employers’ HR departments.
The government also has a website that helps you track down your details for your pension provider. Visit: gov.uk/find-pension-contact-details or call 0800 731 0193.
It may be a good idea to combine your pensions to help keep track of them, especially if you have money in older schemes, which tend to charge more.
But first, make sure you wouldn't be giving up any valuable benefits from any of your pensions by switching. Ask if you're not sure.
Choose the provider you'd like to switch to and ask them to help - they should then do most of the legwork.