In its consultation Looking to the future: greater member security and rebalancing risk, the UK Department for Work and Pensions asked for feedback on its proposal that, in future, all employees with existing pension pots would 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.

To assess the possible workplace impact, the CIPD included some questions on this proposal in its Labour Market Outlook – Winter 23–24. Our first question asked respondents to what extent their organisation’s pensions administration costs could change if the proposed lifetime provider model (LPM) was introduced – a proposal dubbed as “pot for life”.

Overall, 43% thought that the move to the LPM would increase their organisation’s pension administration costs, with 16% of them predicting a significant rise and 27% forecasting a slight increase.  

However, 18% expect that the pot for life would have no cost impact, while 37% were unable to say how it might impact their costs.  

Private sector respondents were more likely to predict a jump in costs, while those in the public and voluntary sectors were far more likely to be unable to make a cost forecast. Within the private sector, while 51% of large companies (employing 250 or more people) predict a rise in their pension admin costs, 41% of small or medium-sized firms (SMEs) thought the same. Manufacturing businesses were most likely to predict an increase.  

Most employers still committed to offering pensions 

Positively, if the LPM is brought in, most employers would still commit to offering their workers a pension. We asked respondents if all employees were able to select their own pension provider, how likely they thought their organisation would be to keep offering a workplace pension plan, and most said it would be either very likely (24%) or somewhat likely (30%) to do so. Just 22% said that their organisation would be unlikely to offer a plan once the LPM was introduced, though 24% were unable to give an opinion.  

Within the private sector, large firms (60%) were more likely to keep offering a workplace pension than SMEs (47%). On the flipside, respondents in SME firms (27%) were more likely to say that they would ditch the workplace pension scheme than large companies (21%).  

Similarly, if the pot for life were introduced, most employers (66%) would still be interested in their employees’ pensions and retirement understanding. We asked respondents if employees were able to select their own pension provider, how concerned they thought their organisation would be about their employees’ pensions and retirement understanding, and nearly a quarter said they would be either extremely (11%) or moderately (13%) concerned. Others were somewhat (21%) or slightly (21%) concerned. Meanwhile, 14% said they would not be at all concerned and 21% did not know.  

Within the private sector, large firms were more likely to be either extremely or moderately concerned than SMEs. SMEs were more likely to have no concerns compared to large firms.  

Awareness, contribution level and value 

These survey results came after the consultation closed. However, in our response, we flagged more pressing concerns, such as the low level of pension awareness in the workforce, the need for higher pension contributions, and that too few organisations check if their workplace pensions are delivering value for money.  

For example, while saving for the future is seen as important by many workers, their understanding of pensions is lacking. CIPD research found that 17% of employees didn’t know what type of workplace plan they are saving into, and 28% of those who knew they are members of a workplace-defined contribution plan didn’t know how much their employer is contributing.  

However, these results probably reflect employer engagement with pensions. Other CIPD research found just one in three private sector firms would always include details of the workplace pension in their job adverts, with large firms no more likely to publish this information than SMEs. By comparison, three in five public sector organisations and three in four voluntary sector employers would always put this information in their job ads.  

To help boost pension awareness, as well as help to cut the size of the gender and ethnicity pension gaps, the CIPD recommends in its Manifesto for Good Work that employers should include information about the pension plan when they advertise job vacancies, alongside salary information. 

About the author

Charles Cotton, Senior Performance and Reward Adviser

Charles has recently led research into the business case for pensions, how front line managers make and communicate reward decisions, and managing reward risks, as well as the creation of a good practice guide on the annual pay review process. He is also responsible for the CIPD’s public policy work in the area of reward and is a Chartered Fellow of the CIPD.

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