The Government is facing new calls to scrap proposals to introduce a “pot follows member” automatic pension transfer system for small pots and instead create a central clearing house to consolidate peoples’ savings.
Centre for Policy Studies research fellow Michael Johnson has published a paper, titled ‘Aggregation is the key’, calling on the DWP to abandon the proposed pot follows member reforms, whereby a person’s pension moves with them when they change jobs.
Johnson instead proposes the creation of a central clearing house, called ‘PensionClear’, to act as an “efficient, nationwide service” for consolidating pension pots.
He says the clearing house should be connected to a network of competing pension aggregation vehicles, both physical and virtual, which would accept automatic transfers of all forms of retirement savings – including Sipps and Isas.
Employees would be given a default aggregator when they move jobs, although they would have the option to opt-out and take their money to the new employer’s scheme or an alternative aggregator.
While the Government has proposed a limit of £10,000 on auto-transfers through pot follows member, Johnson argues there should be no limit.
In addition, Johnson says the DWP should ask the industry to build the clearing house, which would be operated on a not-for-profit basis. He says if the construction of the clearing house is financed by the Government these costs should be recouped through an industry levy.
Johnson says: “Realising the vision of a central clearing house for pension pots and other retirement savings products, residing within an arena of competing aggregators, would deliver significant bargaining power to consumers.
“Physical aggregators would facilitate scaling up, and consumer portals (i.e. virtual aggregators) would inform, encouraging consumer engagement.
“Together, aggregators and a clearing house could dramatically improve the consumer’s experience of dealing with the industry.
“The allied simplification and standardisation runs contrary to the industry’s natural instincts, but not necessarily its long-term interests.
“The subsequent rebuilding of consumer trust could result in improved business volumes and, ultimately, larger retirement incomes.”
Hargreaves Lansdown head of corporate research Laith Khalaf says: “Pot follows member does not have a great deal of support within the industry, and this report is reinforcing that.
“I think DWP are still considering alternative ideas on this. There are still concerns about whether pot follows member can be implemented practically and if that is not possible then it is off the table.
“The idea of including other forms of saving is a good one in principle but i’m not sure it is achievable in the short-term.”