British Chancellor Jeremy Hunt’s 2023 Autumn Statement included a couple of important announcements that could impact UK to New Zealand pension transfers. One of these was the abolition of the Lifetime Allowance (LTA). The other was a consultation on a “pension pot for life”. What does this mean, and how could it work?
Currently, employers are obliged to offer all eligible employees the option of enrolling in the company pension scheme. However, every time employees change jobs, they could start a new company pension scheme – potentially creating numerous separate pension pots over their working life.
In principle, the idea of a pot for life is simple. Instead of separate pensions as they change jobs, the employee can ask their employer to pay contributions into an existing pension fund.
What could be the advantages of a pension pot for life?
In a nutshell, having all their funds invested in one place gives the employee greater control over their finances. GBPensions’ director Tony Chamberlain explains more. “When personal pensions were first introduced in the late eighties, the plan was that an individual could go between jobs, switch from employed to self-employed and keep the same retirement pot running. Unfortunately, complexities in the industry meant rather than do as was hoped; most people joined a new pension scheme nearly every time they changed jobs.”
Tony and his team regularly help people with multiple schemes. Since someone could have been working for 30-plus years, some of these can be old and have been essentially forgotten. In fact, according to figures from the Pensions Policy Institute (PPI) quoted in The Times late last year, the number of lost pensions has increased by a whopping 75 per cent since 2019. The PPI now estimates around 2.8 million lost pensions in the UK, collectively worth approximately £26.6 billion.
“It can be incredibly hard to keep track of them all! And it’s more complicated now because larger pension administrators have been taking over the running of many of the UK’s smaller pension schemes in recent years. Not surprisingly, it’s confusing for our clients, who often want all their schemes consolidated into one for ease of administration.”
What are the potential complications of a pension pot for life?
One thing is sure: this concept could completely change the look of the UK pensions landscape.
Speaking to The Times, Fidelity International’s head of platform product policy, James Carter said: “It risks removing the benefits of workplace pensions and the regulatory and governance framework which protects members of workplace pension schemes.” Mr Carter is arguably not entirely unbiased. However, in the same article, the head of retirement policy at AJ Bell, Tom Selby, expressed concerns that the biggest hurdle to the plan would be the extra administrative burden on employers. He suggests that “some sort of clearing house would be needed to channel member contributions to multiple schemes, with slick processes so firms are able to easily connect.” He also questions who would pay for a process that “won’t come cheap”.
There are also personal considerations from the employee’s perspective. How should they select the most appropriate pension pot to use? And will what’s right for them in their early 20s (say) still be right for them thirty-plus years later?
When could the pension pot for life come into effect?
At this stage, the concept is very much in the consultation phase, and, as can be seen from just this brief overview, there are numerous logistical questions to address. There’s, therefore, no timescale for when the pot for life will be introduced – if indeed it ever is.
The UK Labour Party hasn’t yet expressed a view on the idea. An election is looming, and if polls and local results are to be trusted, a change in government seems likely. This could add yet another question mark to the pot for life’s introduction.
Tony Chamberlain observes, “The proposed ‘pot for life’ regime seems well-intentioned. From our perspective and, more importantly, from our clients’, it could help smooth the overall transfer process, significantly reducing the amount of time spent tracking down pension schemes and all the associated paperwork. Let’s hope the British government can make it work; I think it would be a win for the clients and the schemes.”
