On the proposal as a whole, LCP argue that:
These proposed reforms represent a major distraction from much more urgent initiatives such as taking forward the recent legislation on increasing automatic enrolment pension contributions;
A ‘lifetime provider’ model coming on top of the creation of an ‘ecosystem’ for pension dashboards and a ‘clearing house’ for micro pot consolidation would create substantial additional cost which would end up being borne by members, as would the additional marketing costs associated with a choice-based model;
There are better ways of tackling the proliferation of small pension pots, which do not involve such fundamental disruption to the existing system and do not risk undermining existing high quality provision for low and middle earners; a form of ‘pot follows member’ would help to prevent the creation of new small pots without undermining existing high quality provision;
LCP also identify a ‘shopping list’ of concerns and questions around the idea. These include:
• The risk of adverse outcomes for those who do not exercise choice, especially if more lucrative higher earners leave a scheme, thereby making the remaining scheme less economic for providers;
• How individual savers will be able to evaluate the different pensions on offer to them? Will they be expected to analyse complex VFM reports, or might they instead be swayed by the best marketing or incentive offers, possibly opting as a result for inferior options?
• Will ‘good’ employers be willing to continue to offer high quality schemes if there is a risk that past employees may continue to contribute, potentially costing the employer more? And if there is to be an ‘exemption’ for such schemes (as mooted in the consultation paper) how would ‘good’ schemes be defined?;
• In a ‘member choice’ model, will there be pressure over time for the rules to allow workers to divert contributions into their individual personal pension pot (eg a SIPP held on an investment platform); would this not conflict with the ‘Mansion House’ agenda based on large schemes with significant allocation to ‘productive finance’?
• What will be the approval regime for schemes / providers to be allowed to be ‘lifetime providers’? How will members be protected against the risk of scams associated with moving pension money around the system?
Commenting, LCP Partner Laura Myers, Head of DC at LCP said: “The top priority for tackling the under-saving crisis is getting more money going into workplace pensions. Yet implementation of legislation that would do just that is currently stalled whilst the government apparently has capacity to do work on a complete restructuring of the whole architecture of automatic enrolment. There is already a huge amount of change and reform in the pipeline, taking up the time and money of employers, providers and trustees.
These various reforms need to see the light of day and then be given time to bed in and their impact to be assessed before moving on to further change of questionable benefit and considerable cost to members”.
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