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, the Department for Work and Pensions confirmed it plans 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 should not be the case for pensions as well.
“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.”
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.
“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.”
Annuity Direct chief executive Alan Higham says: “This is a nice idea in theory but I am not sure it will work in practice and I would be surprised if the DWP makes any change to its proposals.”