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Michael Johnson: Aggregation could boost pension incomes by 13%

Centre for Policy Studies research fellow Michael Johnson says his radical plan to consolidate people’s pensions could increase retirement incomes by 13 per cent.

Earlier this month, the CPS published a paper, titled ‘Aggregation Is The Key’, calling on the Department for Work and Pensions to abandon the proposed pot follows member reforms, whereby a person’s pension moves with them automatically when they change jobs.

Johnson says the Government should instead create 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.

While the Government has proposed a limit of £10,000 on auto-transfers through pot follows member, Johnson argues there should be no limit.

Johnson has now published a briefing note setting out the impact his plans would have on pension charges.

He says the reforms would reduce annual charges by between 0.35 per cent and 0.75 per cent. Assuming annual investment growth of 3 per cent, this would convert to an increase in retirement income of between 6.1 per cent and 13.3 per cent.

If the reforms cut pension charges by 0.55 per cent, Johnson says retirement incomes would rise by 9.6 per cent as a result.

Hargreaves Lansdown head of pensions research Tom McPhail says: “While I understand and recognise Michael Johnson’s arguments as having some validity – because if we can achieve scale then logically that will drive down costs – I think there is a better way to do that which will engage members.”

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