I went to a breakfast event recently where three of Scotland’s leading business journalists were speaking. They were talking about where business news breaks first. To my astonishment, and bearing in mind that these guys are very seasoned hacks, all three agreed it was Twitter. The first tweet was only sent six years ago and already Twitter is the main source of breaking business news. Wow!
With the small-pot consultation about to end, I have been thinking about the future a lot. The Government wants to physically move scheme leavers’ pension pots either to an aggregator scheme (I suspect it sees Nest in this role) or the pot follows the member to their new scheme. I am not in favour of either of these ideas for three reasons.
First, transferring pensions automatically will give rise to widespread customer detriment, loss of protected tax-free cash, loss of with-profits guarantees and mismatched lifestyle glide paths being just three examples where widespread financial damage could occur, even with small pots.
Second, being automatic, it aims to cut financial advisers out of the loop. I think some decision-makers do not understand the value that advice adds. They seem obsessed with low charge equals good and advice appears to them as a worthless cost. Note that how much you save and the investment return on those savings are by far the two most important factors that determine the size of your pension pot.
The third reason is that these solutions are just so, well, yesterday.
I would like to see all my bank accounts in the same virtual place. Not just the accounts with one bank but all of them. I do not want to physically combine any of them, and woe betide any smart alec who tries to do this automatically because they think it is in my best interests.
I would like to see my pensions and Isas in there too. I would quite like to drag and drop money out of one account into another. Or into my pension or Isa.
The people who will build up small pension pots under automatic enrolment are young people. We should be thinking about creating solutions for them, not for people like me who are a bit behind the Twitter curve.
There is no need to physically combine pension pots. Just combine them virtually. This would mean no financial damage is caused by a clumsy process imposed by someone who thinks they know what is best for me. If I choose to move money around, and physically combine stuff, it will be my choice.
But I would still expect my pension provider or financial adviser to warn me first, by virtual message perhaps, that I might be about to commit financial hara-kiri.
John Lawson is head of pensions policy at Standard Life