Lobby group urges DWP to create "pot for life" solution

A new industry group, the "Pot For Life" lobby group, has urged the government to adopt its proposals as soon as possible as it looks to end the proliferation of deferred small pension pots.

The new group, which is made up of representatives from a number of companies including Hargreaves Lansdown, Interactive Investor, and Franklin Templeton, said that its solution will end the small pot problem once and for all.

Proposals for a lifetime pension provider model were previously raised as part of a bill from MP Anthony Browne, which aimed to give employees the right to have their employer pay their pension contribution to a pension of their own choosing,

Under this model, a 'pot for life' would become the default option for all workplace pension savers.

Currently, on starting a new job, a pension saver is defaulted into their existing scheme unless they express a desire otherwise. If no existing scheme exists, they are defaulted into a scheme by their employer.

However, the group says the concept would give individuals the right to receive employer contributions to a pension of their choosing, rather than being forced to accept one selected for them.

In its response to the Department for Work and Pensions (DWP) consultation on small pots, the group argued that, by giving pension savers choice over their pension provider, it believes "the dynamics of the pension system" would be better aligned to suit the saver.

"Providers would be incentivised to look after savers knowing that if they did not give them a good service, they would risk losing them as customers," it stated.

LangCat director of public affairs and spokesman for the group, Tom McPhail, said that auto-enrolment has caused the creation of a proliferation of dormant pension pots, which the DWP’s default consolidator solution cannot fix.

"Auto-enrolment also doesn’t work well with the 2015 pension freedoms; Pot For Life would help give savers a greater sense of ownership and engagement with their retirement accounts,” argued McPhail.

“There are multiple technology solutions competing for airtime here. We’ve already got the dashboard programme; the default consolidators will also need a clearing house and something similar will be needed for Pot For Life. So we’ve asked the DWP to build pot for life into their planning now; we want to future-proof whatever the industry develops.

“Many people and organisations across the industry support Pot For Life. Equally, there are issues to resolve and some have reservations about the impact it could have.

"The purpose of the working group is to work through all the practical considerations and to contribute constructively to the DWP’s policy development work.”

The group says it is possible to introduce "pot for life" without causing significant disruption to employers, drawing on either existing payroll providers or through the adoption of a clearing house.

It said the idea could be introduced over three stages. Stage one would retain the existing auto-enrolment system as the default and introduce "pot for life" only for those engaged individuals who express a wish to have their new employer pay into an existing pension.

Stage two would extend the right to choose at any time, not just when changing jobs. The final stage would involve a full transition to the new system, whereby an employee’s existing pension from a previous job would become the default choice and the employer would only enrol someone into a new pension if they did not already have one.

Industry experts also previously expressed frustration over the government's plans for a default consolidator model, with a number of organisations encouraging the government to give further consideration to a 'pot follows member' solution.

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