The government’s focus should be on pensions adequacy, industry professionals have said, describing the so-called ‘lifetime pension’ as a distraction. Most also agree that the raft of defined contribution initiatives currently in train should be prioritised.  

A call for evidence on “greater member security and rebalancing risk”, which proposes to let people choose their own workplace pension provider, closes on Wednesday. Some in the pensions industry are cautiously optimistic about the model, while others warn it could lead to high fee products. Most, however, agree that now might not be the right time, given the flurry of other pension initiatives already in train, from pensions dashboards to value for money, consolidation, collective defined contribution and new codes of practice.  

Provider Aegon believes the biggest issue facing savers is not multiple providers, but low levels of contributions. The call for evidence fails to mention the more immediate need for improving income adequacy, said its head of pensions, Kate Smith, and was an “unnecessary distraction”.  

“The relatively low level of pension contributions paid by the majority is a political timebomb waiting to go off, as employees are lulled into a false sense of security that they have saved enough,” she believes. 

The government should implement the recommendations of the 2017 Automatic Enrolment Review which it accepted at the time as a priority, she argued, adding that once the planned changes have been made, minimum contributions should rise from 8% to 12% of earnings, with at least half coming from employers.  

Hymans Robertson’s head of DC markets, Paul Waters, expressed a similar view. “The government’s proposal risks making the situation worse by placing more responsibility on savers and away from employers, without addressing how overall savings rates will be increased,” he said. 

The time, resources and infrastructure needed to create a pot for life model “risks distracting from existing priorities in DC pensions which should be tackled first” and which “would help create a more suitable environment for a lifetime pension model in due course”, he said. 

 

 

Many say that the number of current initiatives to tackle the problems the lifetime pension could address – stemming the tide of small pots, for example – should be implemented first, and fear members could be more vulnerable to poor value or even scams with a pot for life, although most acknowledge that it could improve engagement. 

 

The Association of Consulting Actuaries has “serious doubts” about the lifetime pension, including the timing of the proposal, but said that it “remains open minded on the potential attractions” of the model. It is concerned about the effort to implement the infrastructure for lifetime pensions and fears members are ill equipped to choose the best provider for them, potentially leading to poorer outcomes.    

Its DC committee chair Tessa Page also warned employee choice would disengage employers and increase the risk of scams and mis-selling.   

“We recognise a need to test the status quo of the workplace pensions framework, but given the sheer number of initiatives in flight it feels that policy priorities should lie elsewhere,” she said. 

Isio partner Richard Birkin, while “encouraged” that the government was looking to innovate in the pensions market, agreed: “We’d rather that the government sees the current set of policies to fruition first before thinking about introducing the next set of reforms.” 

 

The chair of the Pensions Management Institute’s policy and public affairs committee, Tim Box, said it was “the wrong consultation at the wrong time”, adding that changes as fundamental as this must be based on evidence and the development of consensus.  

 

“The government needs to explain more fully what it is trying to achieve and provide more detail about how it intends to do this. There may be some merit in considering how a lifetime provider system could help connect people with their pensions and provide better outcomes, but there are many policy initiatives already in various stages of development which could also achieve these goals,” he said.  

By having the employer choose the appropriateness of a scheme, millions of employees have been able to contribute to a pension without having to make complex financial decisions regarding their futures, said the Association of Professional Pension Trustees.  

“Whilst there are weaknesses in the current regime, the government has a wide range of initiatives mid-stream that look to set right some of those weaknesses,” the APPT agreed. 

Its chair Harus Rai said members are better off with fewer pension accounts, and added that the proliferation of small pots under the current system “undermines the retirement savings outcomes of auto-enrolment”. 

However, he too stressed that “solutions need to be evidence-based".