Auto-enrolment has been widely accepted to be have been a success.
Due to the British public's indifference to their long-term savings, it is estimated as many as 88 per cent of eligible employees are in some form of workplace pension, as of 2022.
However due to current working habits, which some would argue would not be completely unrecognisable 12 years ago when AE was launched, many people have multiple pension pots.
For some, these are tiny.
Given that every employer must make contributions for anyone aged 22 up to state pension age, earning more than £10,000, and given these same people move around from job to job, it is understandable there is now a plethora of small pots.
Addressing the issue
The Department for Work and Pension suggests there are 20mn deferred pots worth less than £10,000, amounting to £30bn in assets.
This makes little sense from a commercial perspective, and very small pots, under £1,000, are often not even covering their administration charge, generating estimated costs of £225mn.
Everyone – ministers, civil servants, pension administrators – are in agreement that this needs to be rectified.
Steps are under way at the DWP to develop a multiple consolidator model for dealing with these deferred small pots, which many think will address this issue.
The UK pension scheme landscape:
| Defined benefit | Hybrid: mixed benefit | Hybrid: dual section | Defined contribution (trust) | DC (workplace contract) | |
| Schemes | 4,740 | 240 | 600 | 26,390 | 1,830 |
| Open schemes | 640 | 20 | 260 | 22,750 | 1,450 |
| Total membership | 5.9mn | 1.1mn | 4.3mn | 24.8mn | N/A |
| Total active members | 440,000 | 238,000 | 889,000 | 10.8mn | 5.6mn |
| Source: The Pensions Regulator (based on scheme returns December 31 2022 except DC (workplace contract) total active members, from annual survey of hours and earnings (ASHE) 2021 (published April 2022)) | |||||
However, much bigger and more ambitious plans are being developed that could transform the rest of the DC pension industry, effectively consolidating everyone into a smaller number of larger schemes, a move that many see would break the link between the employer and the individual.
The plan, as outlined by the DWP last year, suggests that an employee moving to a new employer could request that the employer makes their pension contribution into the employee's own choice of pension, typically one from a previous employer, rather than enrol them in the new company scheme.
Twin aims
Sir Steve Webb, former pensions minister and partner at LCP, sees this as having atwofold aim.
The first, he says, is the concept of pot for life, whereby a new employee, who is already enrolled elsewhere, would have a legal right to say where they want their, and employers', contributions to go, based on the notion of 'member choice'.
On the second, Webb says: "The 'lifetime provider' is best viewed through the lens of a 21-year-old, who has a pension provider in their first job, and goes to their second job; their new employer has a legal duty to provide a pension on the presumption it goes back to the original provider."
The DWP consultation paper, "Looking to the future: Greater member security and rebalancing risk, says: "To deliver this without the need for individuals to engage, we think a form of central architecture to allow employers to quickly identify which scheme their employees are using as their lifetime provider would be required.
