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Nest: automatic pension transfers could hike member costs

Nest has warned the Government allowing automatic transfers of pension pots when people move jobs will increase member costs and reduce overall pension saving.

In December, the Department for Work and Pensions issued a consultation outlining possible reforms to help people consolidate small pension funds.

Options range from small changes to encourage transfers to an automatic transfer system where pension pots could either be consolidated in one or more ‘aggregator’ schemes or move with people from job to job. 

In its response to the consultation, Nest says: “We’re concerned that any model based on a very large number of transfer transactions runs the risk of introducing substantial new costs into the system.

“A ‘pot follows member’ model could introduce as many as several million such transfers each year. These costs, in one way or another, will ultimately fall on members and reduce overall pension saving.”

The Government-backed scheme also raised concerns that adopting a model which uses a single aggregator of small pots, rather than multiple aggregators, would leave a competition void.

It says: “We believe that there are some potential risks around a single designated aggregator scheme because of the absence of competition that this would leave. This could give rise to a need for greater regulation around prices and service standards.

“At the same time, we recognise the challenge that multiple aggregators, while potentially solving the challenge of giving schemes somewhere to send small pots, do so at the expense of the consolidation benefits for members that such an approach would seek to provide.”

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Guide: how to… communicate with your pension members

Effective communication of your pension scheme is a large part of getting auto-enrolment right. Delivering the same message to all employees is not necessarily the way to go. To assist you with the communication of your pension scheme, we have provided some key areas to think about, such as:

  • What to consider when segmenting your workforce
  • How to communicate to pension scheme members at the right time in their member lifecycle
  • What topics you should be discussing with your pension members
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Comments

There are 2 comments at the moment, we would love to hear your opinion too.

  1. none of NEST’s business, unless they believe they should set policy as well as execute on it

  2. Increasingly looks like the whole concept has been ill-conceived from inception. NEST looks set to repeat many of the problems previously experienced by large pension providers. The difference being that they have resolved many of the issues over time and now have economy of scale due to their assets under management. The Government should have harnessed the resource that already existed and not tried to reinvent the wheel.

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