DWP call for evidence on ‘Looking to the future: greater member security and rebalancing risk’ - Which? response

The introduction of a lifetime provider model would require fundamental changes to how workplace pensions operate in the UK and the way pension contributions are currently made. It has the potential to bring benefits to savers, for example by simplifying their pension savings so that it is easier to engage and make good decisions. However, there are also potential costs to its introduction that must be considered and would need to be mitigated, including that:

• Savers risk making poor decisions about what product to save into for ‘life’. There is a risk that savers may switch to a fund that offers them less value for money than their employer's scheme. This approach is at odds with auto-enrolment, which requires little engagement from employees when saving for their pension. Intense competition between providers could lead to schemes targeting their marketing towards higher earners and those entering the workforce for the first time, increasing the risk of individuals making poor choices and opting for low performing, high cost schemes. 
• It could increase member costs. Removing the connection with the employer would mean that the buying power employers use to negotiate better terms would be lost. Moreover, intensive marketing could lead to huge increases in advertising costs that could be passed on to members through higher fees.
• It could reduce motivations for employers to offer a good pension scheme. Breaking the connection between an employer and their employees' workplace pensions provision could reduce the pressures on employers to choose a pension scheme that offers good value for money and suits the needs of their workers. In some cases, it could also reduce motivations to increase employer contributions.

We agree that many of the key building blocks for a lifetime provider model will be delivered by initiatives that the government is already pursuing to benefit savers. The implementation of its default consolidator model and pensions dashboards will provide some of the systems architecture necessary for a lifetime provider model, and it is therefore essential that the government prioritises the implementation of these initiatives. 

Should DWP progress with a lifetime provider approach, there must be strong consumer protections in place. Given the likelihood that many savers may make poor decisions about what product to save into, the government must ensure consumers are protected from poor outcomes as a result of this increased responsibility. DWP should also prioritise the introduction of its Value for Money framework to help mitigate the risk of savers choosing a consistently poor performing pension scheme.