Why consumer confidence could undermine pots for life

The consultancy group found that more than half (54%) of the 2,000 adults it surveyed – all of whom were paying into a defined contribution (DC) pension – said they would be more engaged with their retirement savings if they had one ‘pot for life’.

A similar proportion (53%) said the idea would bring a positive change to the UK’s pension system.

However, the research also identified what Barnett Waddingham called a “crisis of confidence” when it comes to making financial decisions, such as which pension provider to choose.

Almost half (49%) of respondents reported feeling nervous of making bad decisions around provider selection. Women are even less confident, with 53% saying they would be nervous around decision-making. Of those aged 51 to 55 years old, 58% said the same.

Making a choice

Barnett Waddingham also asked respondents how they would choose a provider if given the option. People were more likely to trust the recommendation of a consumer expert such as Martin Lewis of MoneySavingExpert (45%) over the financial performance of a provider (42%).

Just under a third (30%) of respondents said they would go with the recommendation of their financial adviser. However, as Barnett Waddingham explained in its research, just 8% of UK adults received “full” financial advice in 2022.

This raised a concern that the lifetime provider model “could create a rift in the pensions market if not rolled out carefully; seeing the wealthy and confident benefitting over those with lower levels of financial means, literacy, and engagement”.

Mark Futcher, head of DC pensions at Barnett Waddingham, said: “British savers have clearly been wooed by a sexy-sounding new pensions policy that has built up their hopes for a better future for retirement. But issues of apathy, low financial literacy, and chronically low pension saving won’t be fixed by a pot for life.

“What’s worse, we know that Australian superfunds on the other side of the world tend to splash the cash on sponsorships of sports teams, and advertising campaigns which would clearly win over savers looking for experts and brand trust. Yet, this spend comes at an opportunity cost of investing in member outcomes, and we risk a pensions system that is fighting for commercials, not consumers.”

Futcher added that there were other “very big pension problems” that the government needed to address before implementing the lifetime provider model. These included increasing auto-enrolment contributions, bringing in auto-escalation, and lowering the minimum age limit for auto-enrolment.

“The government must work with the industry, not against it, to create the best outcomes for pension savers,” he said. “This means enacting reform to ensure the country has a financially engaged, and confident population that clearly understands their path to retirement – whatever that model may look like in 10 years’ time.”

Further reading

Chancellor proposes ‘pots for life’ in major pension reforms (22 November 2023)

Pensions experts raise fears over the government’s ‘pot for life’ plans (24 January 2024)

Pot for life could threaten auto-enrolment success, warns ABI (2 April 2024)