The Chancellor is expected to introduce a pension “pot for life” in tomorrow’s Autumn Statement, allowing consumers to combine their savings for later life.
Jeremy Hunt is set to unveil a number of further reforms in order to increase the amount of money in British pensions invested in the economy.
The measures expected tomorrow will give savers the right to nominate the scheme into which their employer pays contributions, rather than join their employer’s default arrangement.
The introduction of workplace pensions in 2012 saw workers automatically enrolled into pots that are arranged by an individual’s employer. Under the current system, workers who move jobs frequently collect a number of small pots which can be difficult to manage and costly to combine.
A Treasury source told the Financial Times: “Helping people keep the same pension pot will stop billions of pounds being needlessly lost and make sure tomorrow’s pensioners benefit from every penny they save.”
But former pensions minister Steve Webb was scathing about the possibility of success for the reforms.
He said it could take away the ability of large employers to bargain with pension providers for good deals and that lower-paid workers would end up with worse arrangements as a result.
The former minister added that pension providers would spend more on advertising to chase higher earners, which would increase the cost of pensions for all consumers.
Mr Webb said: “It’s probably good news if you are a top earner who is going to shop around and is engaged and well informed. But the reason we have automatic enrollment is that most people don’t engage with pensions.”
The Chancellor has adopted the so-called Mansion House reforms in an effort to unlock £75bn from the economy.
Mr Hunt scrapped the lifetime allowance for pensions in April and increased the amount savers could put into their pensions from £40,000 to £60,000.
He announced a £320m plan to support new investment vehicles tailored to the needs of pension schemes on Tuesday, ahead of the Autumn Statement.
It comes alongside other potential interventions on inheritance tax and savings, including a “Great British Isa” which could come with an extra £5,000 annual allowance.
Savers may also be able to open multiple Isas of the same type in a single year without losing their £20,000 allowance, in another reform being considered to drive investment.
The Chancellor told the Confederation of British Industry that he was feeling “confident” about the state of the economy and that he was “focusing on growth”.
Recent reports have suggested that the Chancellor feels that there is more money in the economy to make concessions on tax, following a drop in the rate of inflation.
The latest inflation figures, published last week, suggested that the rate had fallen from a peak of 11.1pc in October 2021 to 4.6pc.
In January this year, the Prime Minister made a commitment to halving inflation as one of his five key pledges, alongside growing the economy and reducing debt.
Becky O’Connor, director of public affairs at PensionBee, said: “‘Pot for life’ is a great solution to the problem of people having lots of old pensions from multiple jobs. A pension could become a bit like having a bank account, into which different employers can pay. It’s good for savers, giving them more say over how they want to grow their retirement fund and hopefully a decent solution to the problem of lost pension pots.”
How to avoid the common pension tax mistake catching 86 per cent of people