Hargreaves Lansdown has called on the Government to reform automatic enrolment to let employees choose their own pension scheme.
In April Money Marketing revealed the Government is exploring radical plans to let employees overrule their employers on workplace pensions.
Supporters say the move would solve the problem of people building up multiple small pots when they switch employers, as well as empowering savers and boosting engagement.
They argue the pension freedoms have pushed responsibility from employers onto individuals and this should be reflected in the system for building up savings.
A briefing note published by Hargreaves Lansdown, and seen exclusively by Money Marketing, sets out why the firm supports the idea.
It says the proposed “provider follows member” model would be fit into a modifided auto-enrolment system “retaining the key advantages of the current system and adapting it to meet the engagement needs of the post pension-freedom world”.
Author – head of retirement policy Tom McPhail – explains new employees would be asked whether they would like their pension contributions paid into an existing scheme.
He notes several potential issues and how they would be overcome. These include paternalistic employers not wanting to accept contributions for past employees, and a negative impact on firms’ willingness to engage with pensions.
For the former McPhail suggests providers and in-house schemes would not be compelled to offer the option and adds employers would still be able to set their own contribution rates to reward staff to remain engaged.
The People’s Pension director of policy and market engagement Darren Philp says: “This is what happens in Australia. Employers should still have a default scheme for auto-enrolment but if someone is engaged, why not let them choose? Something like this is probably a few years away but it is always good if the system allows people to vote with their feet.”
Pension Playpen founder Henry Tapper says: “Employers don’t really own pension schemes any more, do they really have a relationship with a provider like Nest? There are technical problems with sending payments to different providers but if they can get around that it would be a good thing particularly for small firms. Where employees want to get involved with pensions we should let them.”
Critics have argued employers and payroll firms will not be able to cope with facilitating multiple payments to multiple pension providers.
But McPhail says either the Government can create a central clearing house – so employers make a single payment which is then distributed to individuals’ chosen schemes – or payroll firms will simply have to adapt.
He says: “Some payroll providers already allow employers to pay to multiple pension providers. Others will have to incorporate additional fields to allow this. It is hard to imagine that they would be enthusiastic about this, but that doesn’t mean it can’t be done.”
Clarke Robinson & Co managing director Steven Robinson says: “This is a like walking on the moon without oxygen, can you imagine the chaos this would cause? Accounting costs would become enormous, what about all those firms with staff paid weekly with fluctuating hours. We would be better off concentrating on the pensions dashboard, where you can see all your savings in one place.”