January 16th, 2024
What is the chancellor’s “pension pot for life”? Here’s what you should know
In the 2023 Autumn Statement, delivered on 22 November, chancellor Jeremy Hunt unveiled plans to reform the way employees can enrol in workplace pension schemes.
During the lengthy Autumn Statement, Hunt revealed a proposal for what he calls a “pension pot for life” that could help to empower employees to take charge of their pension savings when they enter a new role.
The scheme would allow employees to request that their new employer pays into an existing pension pot, rather than being forced to sign up to a new workplace pension.
If you are either approaching retirement or still fully immersed in your career, the pension pot for life proposal could have a significant effect on your pension savings going forward.
Here’s how this reform could affect your retirement savings, plus some important factors to consider if it were to come into force.
2 ways the chancellor’s “pension pot for life” could positively affect your retirement savings
1. You could avoid having several small workplace pensions
The days of staying in one company for decades are mostly behind us. While some people still spend their whole career in one place, many others progress from role to role throughout their working life.
While jumping into new opportunities could be positive for your career, it may not be as helpful for your pensions. Under current legislation, employers are required to sign eligible new employees up to their workplace pension scheme, meaning that you could have several of these pots sitting unattended to from past roles.
In light of the proposed reforms, though, you could essentially carry an old workplace pension into a new role. As a result, your existing pot could benefit from increased compound returns when you and your new employer make contributions.
What’s more, earlier in 2023, the Department for Work and Pensions (DWP) proposed the introduction of a “multiple default consolidator model” that would enable certain providers to consolidate eligible small pension pots of under £1,000.
If this becomes law, alongside the pension pot for life proposal, small pensions could be automatically consolidated in some cases. This could help you to avoid having several low-value pensions that earn few returns over the years.
2. You may feel more proactive about your pension savings
Seeing as the auto-enrolment process is done almost entirely by your employer, and many of your pension contributions are likely taken directly from your salary, you may feel somewhat passive towards your pension savings.
Alternatively, the new pension pot for life scheme could encourage you to be more proactive about your contributions, and your retirement savings on the whole. It may encourage you to look into other details about your workplace pension, including:
- How much you can afford to put in, and increasing your contributions where possible
- The tax relief you are set to receive on your contributions
- The type of investments the pension provider makes on your behalf
- Whether the pot is growing in line with your retirement goals.
Overall, the pension pot for life reforms could increase your awareness of your pension circumstances earlier in your career, and may even help you boost your retirement savings too.
How to get ahead of the proposed workplace pension reforms
At the moment, it is unclear if, or when, Jeremy Hunt’s pension pot for life proposal will come into force. Nevertheless, there are ways you can prepare for these reforms and even take some of their ideas into your own hands.
For instance, you could:
- Use the government’s Pension Tracing Service to track down any pensions you do not have details for, or that you may have forgotten about
- Look at your current workplace pension in more detail to understand how much you have already contributed, what your employer has put in, and the type of investments your provider is making.
In addition to the above two actions you can take, it may be constructive to discuss these potential pension reforms with your financial planner.
A professional could help you make the most of any opportunities the pension pot for life offers to you, and can answer any questions you may have about these reforms.
What’s more, we could assist you in being more proactive about making pension contributions and managing the way your pension is invested too.
Get in touch
For a discussion about how to make the most of your workplace pension, your retirement goals, or anything else you have read here, get in touch with us today.
This article is no substitute for financial advice and should not be treated as such. To determine the best course of action for your individual circumstances, please contact us.
The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Levels, bases of and reliefs from taxation may be subject to change and their value depends on the individual circumstances of the investor.
Workplace pensions are regulated by The Pension Regulator.
All contents are based on our understanding of HMRC legislation, which is subject to change.