AEGON is calling for an industry developed ‘virtual' pension aggregator to help people better plan for their retirement and avoid the risks associated with automatic ‘physical' aggregation of small pension pots.
In its response to the DWP's consultation on improving pension transfers and dealing with small pots AEGON argues that a data hub would have the additional benefit of giving people a single view of all their pension arrangements - including public sector, defined benefit schemes and state pensions. This would enable virtual aggregation of benefits where physical aggregation is not possible.
AEGON believes this would help people to better understand how to meet their retirement aspirations and, over time, improve engagement. The company suggests it would allow people to decide when physical aggregation of pension pots might be appropriate, without the pitfalls of automatic aggregation models.
In its consultation document the DWP raises concerns about the possible proliferation of small pension pots once auto enrolment begins and suggests automatic aggregation as a possible solution. AEGON believes that aggregation without advice risks consumer detriment, for example through switching out of funds at the wrong time or potential loss of valuable guarantees or bonuses.
AEGON suggests the advantages of a virtual aggregator are:
- all types of pension arrangements can be captured including defined benefit, public sector (funded and unfunded) and state benefits
- it gives a single view of all pension benefits which could allow people to better assess their future retirement income and, over time, improve member engagement
- people will take an active decision, often with the support of an adviser, on any pension transfers making them more likely to avoid any detriment as a result of an inappropriate automatic transfer
- advice costs could be lower as all the information will already be held in one place
- it builds on existing technology avoiding large upfront build costs of an automatic transfer capability and the risks of government intervention in the private pensions market
Kate Smith, Regulatory Strategy Manager, says:
"We hope the government won't rush into a solution without fully considering the risks or looking at other, less interventionist solutions. The market is already innovating in anticipation of auto enrolment and many providers, including AEGON, are linking up with NEST to provide a joint solution for employers. This could mean there are fewer small pots in the private sector than the government anticipates.
"A data hub can capture details of all pension arrangements - defined benefit and defined contribution, trust and contract based, public and private sector, and state pensions. We believe this would support access to advice and be a much safer, lower cost and flexible way to help people make the most appropriate decisions to meet their retirement aspirations."
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