The boss of a major UK pension provider has called on the government to address a serious flaw in the auto-enrolment system.
It has emerged millions of people had already accrued multiple pension pots through the new regime.
According to The Pensions Regulator’s most recent figures, 35 per cent of all auto-enrolment accounts are inactive, or "deferred", meaning members were no longer making contributions.
The majority of inactive accounts belong to people who have switched employer.
For The People’s Pension and Nest, two of the biggest auto-enrolment providers, the number of inactive members was even higher, approaching half in the case of the former.
Morten Nilsson, chief executive of Now: Pensions – whose scheme’s deferred membership stood at the industry average of 35 per cent – said these figures demonstrated two problems: people were moving jobs regularly, and they were not taking their pensions with them.
“Auto-enrolment will definitely create a number of deferred members, because they will enroll and then they will move jobs. That’s the reality of auto-enrolment,” he told FTAdviser.
He said there was a straightforward solution to this inherent problem: making it possible to transfer pensions "at the click of a button".
But he said this would require the government to lead the way, something it has so far proved reluctant to do.
He urged the government to follow the lead of the government of his native Denmark in the standardisation of digital signatures.
"The Danish government has been working really hard at creating digital signatures that allow us to transact online. In Denmark you can buy a house online."
This, he said, was facilitated by a centralised, secure, government-built and run database that businesses and individuals could plug into.
“The [UK] government has a massive role in pushing the infrastructure that allows us to transact with our benefits, to the benefit of our members," he said.
He said it made more sense for the government to lead a program of this sort, rather than leaving it to the private sector, both for practical and security reasons.
“Rightly or wrongly, I would trust government security more than I would giving my fingerprint out to all sorts of people where it could be completely unregulated,” he said.
Mr Nilsson said the pensions dashboard would go some way to addressing the problem, but added the government needed to take more of an active role in its development. Currently, it is leaving the private sector to build the dashboard, under the auspices of HM Treasury.
He said it was “a little bit odd” that HM Treasury was leading the program, when it was workplace schemes – for which Department for Work & Pensions has responsibility – that would most benefit from the dashboard.
“This is such a core piece of pension infrastructure, I think DWP should be heavily involved,” he said.
FTAdviser asked pensions minister Richard Harrington whether he viewed the high levels of deferred members as a problem, and whether DWP should be more involved in the pension dashboard.
A spokesperson for Mr Harrington did not respond to the first question, but reiterated the government's general commitment to auto-enrolment.
On the pension dashboard, the spokesperson said: "Progress is well-underway to create a pension dashboard that helps savers keep a track of their pensions and DWP is working with the Treasury and industry on this project."
Under former pensions minister Steve Webb's watch, the government had been moving towards a "pot-follows-member" policy, that would have seen pension pots under £10,000 automatically following ex-employees to their new employer's auto-enrolment scheme.
This was temporarily shelved by Mr Webb's successor Baroness Ros Altmann.
Baroness Altmann left government before the future of the policy had been clarified.
In Mr Harrington's statement on the upcoming auto-enrolment review, there is no mention either of "pot-follows-member" or the problem of multiple pots in general.
Baroness Altmann told FTAdviser her ideal solution would be for members to have a "pot-for-life".
This, she said, could allow members to join their employers auto-enrolment scheme, and when they leave that employer, automatically transfer their accrued pension pot into their "pot-for-life".
She said providers could compete to be designated as an individual's "pot for life".
This system, she argued, would give members a feeling of ownership over their pension, a vital factor in encouraging members to engage with their retirement finances.
"The trouble with pot-follows-member is you feel your pension is not yours, but somehow it's your employer's," she said.
james.fernyhough@ft.com
