Pots for life welcomed, but crisis of confidence looms

New research from Barnett Waddingham reveals that while the proposed ‘pots for life’ initiative is welcomed by many UK pension savers, there is a significant crisis of confidence regarding financial decision-making.

According to our survey of over 2,000 UK workers contributing to workplace DC pensions, more than half (53%) see pots for life as a positive change to the UK pension system. This model aims to consolidate pension pots, thereby reducing the risk of losing pension savings — a problem currently affecting up to 4.8 million pots considered 'lost' in 2023.

However, while enthusiasm is high, nearly half of the respondents (49%) are concerned about making poor decisions when selecting a pot. This anxiety is particularly pronounced among women (53%) and those aged 51-55 (58%), who are in the critical pre-retirement planning phase.

Age and confidence divide

The research highlights a generational divide in confidence levels. Younger savers (aged 31-35) are the most optimistic, with 60% believing that a pot for life would increase their engagement with pensions. In contrast, only 44% of those aged 61-65 share this sentiment.

Trusted recommendations over financial performance

The study also reveals that almost half (45%) of pension savers would prefer a pot for life recommended by financial expert Martin Lewis over one with strong financial performance (41%). This indicates a reliance on trusted figures and brands due to a lack of clear guidance on selecting suitable pension pots.

Additional findings show 39% would choose a pot based on a trusted brand, while 30% would rely on their financial adviser's recommendation. Personal connections also play a role, with 25% turning to friends and family for advice.

The financial advice gap

The Financial Conduct Authority (FCA) has highlighted a significant financial advice gap, with only 8% of UK consumers receiving full financial advice in 2022. This gap raises concerns that the pot for life model could exacerbate inequalities, benefiting those with more financial literacy and resources while leaving others at a disadvantage.

Our assessment

British savers have clearly been interested by a 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 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.

There are some very big pension problems the new Government must fix before a pot for life will work. Increasing auto-enrolment levels, auto-escalating contributions at the point of pay rise, and lowering the contribution age threshold are all important. The Government must work with the industry, not against it, to create the best outcomes for pension savers. 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.

The pot for life initiative has the potential to revolutionise the UK pension system by reducing lost pension pots and increasing saver engagement. However, to truly succeed, it must address the underlying issues of financial confidence and literacy, ensuring all savers can make informed decisions about their retirement future.