A new proposal for a “magnetic” pension pot could significantly boost Britons’ retirement savings for years to come, new research claims.
A report by Lane, Clark and Peacock (LCP) is calling on smaller pension pots move with workers from job to job until reaching a “reasonable level”.
Analysis by the firm estimated that two million pension pots are left behind as employees change jobs which is causing millions to miss out on retirement savings they have earned.
To address this issue, LCP is recommending a “magnetic” solution which will implement a “pot follows member” model.
Pensions would be “magnetically attached” to savers when they start a new job and be added with their workplace pension.
This would continue unti the worker has built up a sufficient pension pot. One this point has reached, the automatic transfer of pensions would stop.
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Experts are recommending new proposals to improve the UK’s pension system
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As part of the proposal, workers would be given the option to opt out of this transfer model and keep their pot where it is.
Laura Myers, the head of DC pensions at LCP, outlined why she believes this pension reform would be beneficial for savers.
She explained: “We are advocating a much simpler and more cost-effective solution which keeps the best features of automatic enrolment, such as a single pension scheme in each workplace, but makes sure that people do not reach retirement with large numbers of small pension pots.
“We hope that the next government will think again about the current direction of policy and instead deliver a solution which pension savers will understand and which will deliver the best outcomes for people on average and lower incomes.”
The issue of pension pots being left behind has been raised by Government ministers before with various proposals being floated.
These have included the automatic consolidation of retirement savings schemes which are worth less than £1,000.
However, the issue of larger pension pots being forgotten about is also an issue that experts are warning about.
In November 2023, the DWP published which explored two different, but closely linked, options to tackle this dilemma.
The first is a “Member Choice” model which would provide workers with the legal right to tell their employer to redirect all pension contributions to a nominated scheme.
Under the current system in place, workplaces employees have no choice as to the pension scheme they join as this is picked by the employer.
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Millions of Britons are missing out on rightfully-earned retirement savings
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The alternative being suggested is a “Lifetime Provider” which would see Britons having a single pension provider throughout their career.
This would be ideal for those entering the workforce for the first time with the idea being that someone would have pension pot building over time.
However, there could still be an option for workers to opt instead for a pension scheme offered by their current employer.
Anyone who only wanted a single pension and were happy with their first provider could remain in that scheme throughout their working life.
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