Jen Paice

WHEN it comes to looking after your pension, people often fall into two different camps. There are those fairly rare creatures who will have a meticulous record of the different workplace pensions built up throughout their career, all filed away neatly. But many of us in the other camp find it much harder to keep track of paperwork and remember details for multiple pension pots over our whole working life.

If the latter sounds a lot like you, feel reassured you’re not alone. Planning for later life can be overwhelming as you’re making decisions now for a retirement that could be decades away. You may have more than a few pension pots stacked up over decades, especially if you have worked for several different employers. And even if you get all your pension information in front of you, you still might not know if and what to do next.

It’s arguably more important than ever to try and get the best out of your pension pots (and certainly not lose track of them), as people are typically living longer and will therefore need more to sustain them in retirement. This is reflected in the fact that retirement ages in Scotland (and the UK as a whole) are creeping up. By 2026, it will be 67 and from 2044, it’s expected to rise to 68.

New rules aim to help provide a better financial outlook for all

A potential solution to these issues is “pension pot for life” – a major change currently being proposed by the UK Government where people can choose to have just one workplace pension pot which they keep adding to as they move jobs.

Currently many employers select a workplace pension scheme on behalf of employees, who (subject to meeting certain requirements) are automatically enrolled in the scheme. “Pot for life” would change this by allowing the employee to choose the pension scheme they pay in to, instead of the employer.

And because a “pot for life” would move with the employee if and when they change jobs, they build up one workplace pension over their career. This avoids the type of situation we’ve just talked about where people have lots of little pension pots – with potentially limited growth – scattered around from previous employers, which can be understandably hard to keep track of over time.

So far, so good, but as with any big reform, “pot for life” could also come with its own complexities and does ultimately put more responsibility on pension savers. Having the option under “pot for life” to choose your own pension scheme on the one hand gives more flexibility. But someone could ultimately end up worse off if they don’t choose a good scheme. By comparison, under the current auto-enrolment rules for workplace pensions, good employers often add value by carefully reviewing and selecting a pension scheme for their employees.

Making “pot for life” a reality would, of course, take a huge amount of work and administration. For example, “pot for life” has on the one hand been described as a bank account for your different employers to pay in to. But, currently, pensions don’t all have account numbers and sort codes like bank accounts, arguably making them much harder to administer.

Employers could also have a lot more work on their hands making payments into a whole range of different pension schemes if “pot for life” goes ahead. This could be tackled by setting up something called a clearing house, but some industry experts stress the time, complexity and cost required to make this happen.

Pros and cons aside, if “pot for life” does go ahead then it will be the biggest change to pensions in over a decade since auto-enrolment was introduced – and that resulted in an estimated 20.4 million employees now being a member of a defined contribution workplace pension scheme. Here’s hoping that “pot for life” could have this kind of positive impact.

Jen Paice is CEO of Aberdein Considine Wealth