The UK's Department for Work and Pensions (DWP) has proposed that all employees with an existing pension fund should be able to choose a pension provider (so long as they already belong to that scheme) and ask their employer to pay their pension contributions to that provider – giving people what the media have dubbed a ‘pot for life’.

In our response to the DWP’s consultation (Looking to the future – great member security and rebalancing risk), we welcomed the proposals, but urged the Government to first tackle three more pressing issues: the low level of pension awareness in the workforce, the need for higher pension contributions, and that too few organisations check that their workplace pensions are delivering value for money.  

"The proposed lifetime provider model could help reduce the pension gap and ensure good outcomes for savers. But first we need to boost awareness. A quick and easy win would be to require employers to include information about pension plans in job adverts”

Charles Cotton, Senior Adviser for Reward, CIPD

Many workers think saving for the future is important, but understanding of pensions is lacking. CIPD research finds that 17% of employees don’t know what type of workplace plan they’re saving into, and 28% of those who know that they are members of a workplace defined contribution plan don’t know how much their employer is contributing.

These results are perhaps unsuprising when you consider that other CIPD research finds just 33% of private sector firms always include details of the workplace pension in their job adverts (compared with 59% of public sector organisations and 75% of voluntary sector employers).

To help boost pension awareness, as well as helping to cut the size of the gender and ethnicity pension gaps, our Manifesto for Good Work suggests that employers must include information about the pension plan when they advertise job vacancies, alongside salary information.

The lifetime provider model needs clear objectives, roles and responsibilities.

Before deciding if or how to implement the proposed lifetime provider model, we recommend that the Government addresses the following considerations:

  • The objectives of the lifetime provider model (LPM) need to be set, which must involve employers, employee representatives, and pension providers. These parties also need to be involved in creating the mechanisms that will be used to assess whether these objectives are being met.
  • An action plan must be created, setting out who is responsible for what, and by when. For example: would all employees be able to select their pension provider on a given day; would the move to the LPM be linked to employer size, with the largest organisations offering the LPM first; or would the LPM initially apply to just those people who are either new to employment or are changing employers?
  • A review will need to be established to assess whether the changes have gone according to plan and what impact the move to the LPM is having in generating improved outcomes for employees, employers, and the economy.
  • A decision must be made concerning the best way to provide pensions for those new to the workforce and have little experience of pension savings, such as the employer arranging the pension plan for them.

An industry-financed body should be established to manage pensions payments, to reduce administration costs for employers

Before moving to a single lifetime provider is, another important building block that needs to be in place is a new payments mechanism. Instead of the employer having to pay over its contributions and its employees’ contributions to a multitude of pension providers, an industry-financed body should be established to take the pension contributions from employers. This new body would then match the contributions for each employee and pay them over to the appropriate pension provider. This will help reduce the pension administration costs for employers associated with a move to the LPM model.

To mininise workplace disrpuption, the model should be phased in – starting with large employers

The right timing and sequencing of the potential changes, depends on the objectives. For example, if the aim is to minimise workplace disruption, then we should follow a timetable like the one used for the introduction of automatic pension enrolment, starting with the largest employers and gradually covering medium and smaller employers. Or we could select a period, such as September 2026, and say that only employees who change jobs from that month onwards will be able to select a previous pension provider.Nothing can start until: the systems are in place to help employers pay over their and their employees’ pension contributions; processes are in place to deal with those who change jobs frequently or have more than one employer; and a communication/education campaign for employers and employees has been created.

Read our full recommendations

Our response to the DWP consultation
Word document 37.1 KB

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