Out-Law News 3 min. read
13 Nov 2012, 9:57 am
Aviva said it "strongly supported" the Government's proposed 'pot follows member' model, which would see small pension pots transfer automatically between auto-enrolment schemes in operation at employees' old and new firms when they move jobs.
It said that financial services firms should collaborate and develop "industry standards" to make sure that the plan worked. Developing new standards to bring the model into practice would be beneficial to workers, Aviva said.
"Automatic transfers between schemes will make it easier for employees to manage their pension in one place, see the total value of their savings, and prevent money being lost or forgotten," Aviva said in a statement. "The financial services industry should now put their support behind the Government’s proposals for ‘pot follows member’ and agree a set of industry standards. Aviva acknowledges that safeguards need to be put in place to avoid employees giving up valuable benefits, but disagrees with criticisms that ‘pot follows member’ could be impractical or risky."
The company said that a new 'traffic light' code could also be created "to carefully manage the automatic transfer process".
"A simple, clear set of rules will ensure that pension pots cannot automatically transfer if there is a possibility of significant detriment, and a traffic light approach will flag such schemes," it said.
Aviva said that the 'pot follows member' model provided "clear benefits" to employees in that they would allow those individuals to see the value of all their retirement savings in one place, be able to "monitor investment performance and track progress" online and ensure that their savings are invested in "an up-to-date product operated by an active scheme provider". In addition, employees would benefit from "modern, low-cost charging structures" and receive "better deals" when their pension pots mature, the insurance company added.
Aviva said that the alternative 'aggregator' model, which has the backing of some groups, would present a "significant risk" to the UK economy and workers. This is because there would be "a lack of diversity and competition with millions of employees’ pension savings" because of the way savings would be "managed" in the "single scheme" under the 'aggregator' model, it said.
"We think the industry needs to work together on automatic transfers, as creating a simple way for employees to manage their savings is at the heart of auto-enrolment," David Barral, chief executive of Aviva UK and Ireland Life, said in the company's statement. "The industry should work together to agree common standards to avoid employees losing valuable benefits from previous schemes. However, there is no doubt in our minds that 'pot follows member' has clear advantages for the vast majority of the British workforce," Barral added.
Aviva said it would like a "central clearing house" to match employees' old scheme with that of their new scheme, and for automatic transfers to only take place between two automatic enrolment schemes. This is because those schemes "will meet minimum suitability standards and ensure adequate protection and broadly equal suitability for the consumer," it said.
The company further recommended that the Government legislate so as "to allow for automatic transfers from the start of auto-enrolment to smooth the way for simplifying the overall process for transferring non-auto-enrolment pension pots in the future".
From 1 October last month companies with more than 250 employees have had to automatically enrol 'eligible jobholders' aged between 22 and the state pension age who are earning more than £8,105 a year into a workplace pension scheme or the National Employment Savings Trust (NEST). Work pension schemes must meet minimum regulatory requirements in order to be suitable for auto-enrolment.
Other firms will have to start auto-enrolling their workers into a pension scheme which meets minimum requirements, or the NEST scheme instead, from later 'staging dates'. Mid-sized firms will be required to reach compliance from 1 April 2014, whilst later dates of compliance have been set for small and new-start firms.
The Government set out its preferred method for dealing with the small pension pots created under automatic enrolment schemes in July. Subject to legislation, its 'pot follows member' model will automatically transfer auto-enrolment pension pots to a new employer's scheme when the worker changes job. The method was chosen, following consultation, as the one which would provide the biggest reduction in administrative costs for pension providers in the long run while potentially halving the number of dormant pension pots by 2050.
However, last month Joanne Segars of the National Association of Pension Funds (NAPF), Brendan Barber of the Trades Union Congress (TUC), Michelle Mitchell of charity Age UK and Peter Vicary-Smith, chief executive of consumer group Which?, outlined their opposition to the 'pot follows member' model.
The group called on the Government to consider "alternative models" after claiming that pension scheme members would lose out as a result of the "significant administration burdens and transaction costs" imposed on pension schemes as a result of the 'pot follows member' proposals, which could also see savings transferred into "poorly managed schemes, with high charges and low investment returns".
Pensions law expert Simon Tyler of Pinsent Masons, the law firm behind Out-Law.com, earlier this year warned that the Government's automatic pensions transfer plans would place "a major burden on employers who are already having to take more responsibility than ever for workers' pensions".