Auto-enrolmentSep 10 2018

DWP dismisses proposed auto-enrolment shake up

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DWP dismisses proposed auto-enrolment shake up

The Department for Work and Pensions (DWP) has dismissed a proposal to allow individuals to keep their old pension provider after they change jobs.

In its submission to the Work and Pensions select committee inquiry on pension costs and transparency, DWP stated the government has no plans to introduce such a system.

The idea was mooted by Hargreaves Lansdown, which has been lobbying the government to introduce the new rules.

Hargreaves proposed to give investors with a pre-existing pension who join a new employer the right to stay with their 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 that their pension contributions are paid into their existing pension.

The idea differs from pot-follows-member - a system halted by former pension minister Baroness Ros Altmann - which would allow a saver's auto-enrolment pension to follow them from job to job, by transferring the funds from provider to provider.

Hargreaves Lansdown said its 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.

In its response to the inquiry, DWP said the government was "sceptical" the volume of members who will choose their own scheme would be high enough to drive effective competition between auto-enrolment providers.

The DWP also questioned if the take-up would merit introducing a "potentially significant new burden on employers" to engage with numerous workplace pension schemes on behalf of their employees.

Tom McPhail, head of policy at Hargreaves Lansdown, told FTAdviser the fact that DWP included these statements in its submission was "indicative of pressure which is building across the industry".

He said: "Clearly the easiest approach for the DWP is to persist with the status quo but that doesn’t mean it is a long-term answer.”

Mr McPhail has previously said that introducing such system would only need secondary legislation, and that he was already liaising with officials at DWP and HM Treasury to discuss it.

He also stressed the proposal could help solve the self-employed pension problem, since a mere 16 per cent of these workers are saving into a pension through auto-enrolment.

If Hargreaves' system was implemented, individuals would have the right to choose their pension provider, creating a link between the pension scheme and the individual which doesn’t exist today, the firm argued.

The pension provider would be incentivised to look after the customer more diligently and to reach out to them when they go self-employed, encouraging them to continue saving.

The government and regulator have been criticised for failing to come up with a joint approach to reforming the pension system for the self-employed.

maria.espadinha@ft.com