For those with an interest in pensions and, in particular, the practicalities of auto-enrolment, this week has brought some interesting suggestions on making the whole thing work a little more smoothly. One of the main stumbling blocks to truly integrated pension saving has been that the current auto-enrolment system treats workplace pensions as just that. They are something put in place by your employer and when you change employers your pension pot can be stranded or at the very least difficult to move from place to place. This is inefficient and means that many employees have small savings pots scattered around multiple employers given the way the employment market works in the real world.
Previous suggestions to deal with this have included variants of 'pot follows member' whereby there would be an automatic transfer when an employee changes employment, but this runs into immediate issues around member choice and comparative management charges. Why be forced to move to a scheme with a higher annual management charge or one that doesn't offer the investment choices you want – plus costs!
The new suggestion would be to make what scheme you use for auto-enrolment an employee rather than employer decision. The employee would pick a personal pension plan (that met basic AE requirements) and the employer's duties would be to pay into that. When the employee moves – the pension moves.
This could potentially kill two birds with one stone. However, as with most pensions issues, this is unlikely to be top of the government's agenda and there may well be unanticipated wrinkles in the application of the proposal – for example, how will an individual employee pick a good personal pension scheme without financial advice?
Something to watch for.
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