How do you explain a workplace pension to someone entering the world of employment for the first time?
“So my employer gives me extra money on top of my wage to go into a pension”
“Yes they do”
“And what if I move jobs, does my pension follow me?
“No it doesn’t”
“So every time I get a new job I get a new pension?”
“Yes!”
“And when can I access this pension”
“Not for another 37 years….at least.”
“Oh.”
How did we get ourselves in this mess? While the intention of auto-enrolment was sound, unintended consequences have left us in a real state. If every employer insisted on paying into a new bank account every time someone started a new job then people would end up with money everywhere. Exactly the issue that we’ve created but instead of it being via instantly available cash, we’ve tied up that money in investments that can’t be accessed for a long period of time. Fortunately the ever delayed Pensions Dashboard will eventually shine a light on the extent of the problem, which will then trigger a multitude of pension transfers; another activity we know the industry excels at….
The previous Government was planning to address the issue of small pots to help reduce the ever-increasing number of pensions that employees will now accumulate. The latest stats indicate that the average employee will work for 6 different employers (probably six different pensions) over the course of their lifetime, but for millennials this rises to 15*. 15 different pensions for which the majority will meet the definition of a small pot – less than £10k.
The new Government has planned to include the issue of small pots in its forthcoming Pensions bill. In the absence of any other activity in this space since the Small Pots Coordination Group was formed by the ABI and the PLSA earlier this year, the ticking time bomb that is pensions proliferation must have some serious focus, otherwise the admin burden upon employers (estimated to be £550m in 2023**) will continue to grow exponentially.
That group isn’t one the Government wants to offend any further…..
Carl Woodward
Director