Aviva and Hargreaves Lansdown have joined forces to challenge the Government’s plans to introduce a ‘pot follows member’ automatic transfer system for pensions worth less than £10,000.
In April this year, the Department for Work and Pensions confirmed it planned to press ahead with reforms which will see small pots transferred automatically when a person changes jobs.
The idea has been criticised in some quarters, principally due to concerns people could lose out if their pensions are automatically moved from a good scheme to a bad scheme.
Aviva and Hargreaves have now put forward an alternative ‘one member one pot’ reform. Under the proposal, an employee’s new employer would automatically pay contributions into their old pension scheme, thus removing the need for a transfer to take place.
To make the idea work, scheme members’ P45 would need to include details of their old pension scheme. New employees who do not have a pre-existing pension account would be enrolled into their new employer’s existing scheme.
Aviva corporate benefits head of policy John Lawson says: “I think the DWP could go for this. You do not change bank accounts every time you change jobs and there is no reason why that shouldn’t be the case for pensions as well.
“The technology already exists to make multiple payments to multiple schemes, so there is no reason why you can’t just keep your pot.
“This is a much less wasteful way to go about things because you are not creating huge numbers of transfers and you remove the consumer detriment risks. It also removes the risks associated with building a huge system from scratch to facilitate all these transfers.
“We have all learnt, both the private sector and the public sector, that building systems from scratch is not easy and usually costs a lot of money.”
Hargreaves Lansdown head of pensions research Tom McPhail says: “This idea of arbitrarily moving people’s pension saving whenever they change jobs is contrary to everything we know about behavioural economics.
“If you want to encourage someone to become comfortable and engaged with their retirement planning, the last thing you want to do is change their pension every time they change jobs; how can you possibly expect them to take an interest in their pension under these circumstances?
“You wouldn’t force them to change their bank account, so why do it with their pension?
“We are calling on the government to look urgently at the alternative solution of ‘one member one pot’ as we believe it is a much simpler, safer and cheaper solution to the small pots issue.”