Report

Member choice for pensions

This report from UK think tank the Social Market Foundation addresses some common questions about member choice for pensions.

This Social Market Foundation briefing builds on a previous SMF paper published in December 2023, which argued for ‘member choice’ in pensions. With such a proposal under consideration by the Government, it addresses some common questions and misapprehensions.

Giving employees the right to choose where to send their pension contributions (‘member choice’) would bring several improvements. It would address the flow of ‘small pots’ accumulated across disparate jobs; encourage providers to treat individuals, not employers, as their key customers; and help savers engage more with and take ownership of their savings. Any risk of lost cross-subsidy within pension schemes from larger to smaller contributors should be weighed against the benefits to ordinary savers of having a single pot, improving efficiency and reducing the risk of losing savings; lower charges in a more competitive market; higher engagement (and potentially, higher contributions); and better, more personalised, customer service.

Under the proposed scheme, employees would not be required to choose a provider themselves: the changes would be integrated into auto-enrolment, and their savings could be integrated in a previous or current employer pension by default.

Employers should not be disenfranchised by the changes – they should recognise the benefits of a single pot for their employees. Lifetime providers would remain highly regulated, and savers should therefore be protected against poor value for money and scams. A central clearing house – ‘PensionClear’ – is a critical component of the changes to maximise efficiency and minimise the burden on employers.