Savers could get a “pension pot for life” following Chancellor Jeremy Hunt’s Spring Budget tomorrow but experts are warning millions could have a “poorer retirement” as a result.
Mr Hunt will outline the Government’s fiscal agenda on March 6 which is expected to include an overhaul of the pension system.
Currently, employees are auto-enrolled into a retirement savings plan but this is one picked by the employer.
Under the rumoured “pot for life” scheme, workers would have the option to select their own pension provider.
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Changes to the pension system could lead to millions having a "poorer retirement"
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Their current employer, as well as future employers, would then be forced to pay contributions into this chosen pot.
This change would reportedly make it easier for workers to keep track of their pension savings, as well as have a greater say of where their contributions are being placed.
While experts have acknowledged a “pot for life” could benefit some workers, Aegon’s head of Pensions Katie Smith suggested the policy could be “damaging”.
She explained: “This could work well for a minority of higher paid employees who wish to select their own pension scheme, but risks poorer retirement saver outcomes for millions of employees if economies of scale are lost.
“Costs are spread across scheme memberships, where those with higher pensions effectively ‘cross-subsidise’ the pensions of those with smaller pensions pots who tend to be the lower paid, enabling them to benefit from lower charges.
“Those left behind, on modest incomes, could face higher charges which means lower retirement incomes.“
Furthermore, Ms Smith noted that removing employers from retirement saving decisions could lead to lower employer contributions and less workplace pension support.
The pension expert urged Mr Hunt to exercise “careful consideration” in any potential reform due to the wider impact it could have on how workplace pensions work.
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Jeremy Hunt will announce any potential changes to pensions in tomorrow's Budget
PAA recent survey carried out by PensionBee found that 73 per cent of savers in the UK would consider a “pot for life” pension.
When respondents were asked to share their preference between this option and an alternative “stapling” retirement savings model, the former was considered more popular.
In countries such as Australia, stapling is one of the workplace pension models adopted which involves employers paying workplace contributions into the employee’s first pension unless they say otherwise.
These pension contributions are stapled to the employee and the retirement fund follows savers throughout their professional careers.
Mr Hunt will announce any potential changes to the pension system during tomorrow’s Spring Budget.
