Aviva supports moves to allow employees to keep their auto-enrolled pension savings in one place rather than accrue numerous small pots as they move jobs.
The Department for Work and Pensions' (DWP) consultation paper called Meeting future workplace pension challenges: improving transfers and dealing with small pension pots was released today (15 December 2011), and its proposals include options on:
Allowing automatic transfers of small pension pots between auto-enrolment schemes, which is Aviva's preferred model.
Alternative options including improving the current voluntary system and establishing an aggregator scheme.
Aviva, the UK's largest insurer, supports steps that would see legislation introduced to enable employees to take their auto-enrolled pension savings with them when they move jobs. Regardless of when this legislation is introduced, Aviva would support it being retrospectively applied from the launch of auto-enrolment, in October 2012.
Aviva's preferred automatic transfer model would see a central clearing house to match an employee's old auto-enrolment scheme with their new employer's scheme.
The standards applied on auto-enrolment schemes should mean that employees' savings could simply and safely transfer.
In addition, the DWP's paper also proposes abolishing short-service refunds, which Aviva supports as it will ensure employees being auto-enrolled will be encouraged to save for the long-term - a fundamental objective of the pension reforms being implemented.
Research* from Aviva supports this move to improve current approaches to managing small pots. Two-thirds (63%) of UK workers asked said they did not understand what happened to their pension fund once they left their employer.
Younger workers in particular are likely to be mobile between jobs as they establish their careers and would benefit from new rules allowing the easy transfer of small pots. The research identified that employees tended to join their first workplace scheme at a young age - the average was 24 years. And of these younger workers (25-34 year olds) asked, 46% moved jobs after only two to three years.
Aviva's Director of Workplace Savings Paul Goodwin said:
"We think it's essential that employees who are auto-enrolled into a workplace scheme can automatically transfer their pension when they move jobs.
"We have a huge opportunity with auto-enrolment to transform how people in the UK save for their retirement and it's important that younger workers get into the savings habit as soon as they start their careers. One way we can encourage that is to ensure that those in auto-enrolled schemes can see everything they have saved in one place.
"Allowing workers to have all their savings in one place is a simple but effective way of encouraging employees to take charge of their long-term saving over the course of their careers and we'll be working with the DWP to support the process to improve employees' options around saving in the workplace."
Summary of Aviva's recommendations:
Allow automatic transfers between small auto-enrolled pension pots to enable members' retirement savings to move with them when they change jobs.
Remove restrictions on transfers into and from NEST and auto-enrolment schemes.
Aviva's preferred model for auto-enrolment schemes is a central clearing house to match the old scheme with the employee's new scheme.
Limit automatic transfers to automatically enrolment schemes - as they will meet minimum suitability standards and ensure adequate protection and broadly equal suitability for the consumer.
Legislate, and apply it retrospectively, to allow for automatic transfers from the start of auto-enrolment (October 2012) to smooth the way for simplifying the overall process for transferring non auto-enrolment pension pots in the future.
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