Hargreaves Lansdown is lobbying the government to introduce new rules that would allow individuals to keep their old pension provider after they change jobs.
The execution-only investment platform’s idea differs from pot-follows-member - a system halted by former pension minister Baroness Ros Altmann - to allow a saver's auto-enrolment pension to follow them from job to job, by transferring the funds from provider to provider.
Hargreaves Lansdown's proposal is to give investors with a pre-existing pension who join a new employer the right to choose that previous provider, rather than joining their new employer’s scheme and ending up with a new pension arrangement.
Nothing would change in the current auto-enrolment system unless the individual makes an active choice to request the employer that the pension contributions are paid into an existing pension.
Hargreaves Lansdown said that this approach would avoid disrupting the current default structure, but at the same time would also reward and encourage active engagement on the part of both members and of pension providers.
Tom McPhail, head of policy at Hargreaves Lansdown, told FTAdviser that this new proposal would only need secondary legislation to be introduced, and that he is already liaising with officials at the Department for Work and Pensions (DWP) and HM Treasury to discuss it.
But the plan has been criticised by former pensions minister Sir Steve Webb, who warns it could collapse the whole basis on which auto-enrolment is built.
Sir Steve argued platforms like Hargreaves would target big pension pots – since a charge cap of 0.75 per isn’t financially attractive for small pots - and this would end distorting the auto-enrolment market.
He said: “In a workplace scheme, the fact that there is a mix of big pots and small pots makes the scheme viable within the charge cap. If someone hoovered up the big pots, many workplace schemes could become unviable except with Nest.”
Sir Steve also mentioned the example of Australia, where a similar system exists.
He said: “As a result, pension providers spend a fortune on advertising, competing for pots, and charges in Australia are way higher than in the UK.”
He also noted that it is already possible for a saver to ask an employer to put auto-enrolment contributions into a different scheme. The company, however, is not obliged to comply.
Guy Opperman, minister for pensions and financial inclusion, has recently dismissed the introduction of a 'pot follows member' system as the government focuses on the roll-out of auto-enrolment.
This decision was soon after branded ‘incompetent’ by the Liberal Democrat spokesman for Work & Pensions Stephen Lloyd.
maria.espadinha@ft.com
