By John Lawson, Head of Policy, Aviva
Today, Michael Johnson released his latest report ‘Aggregation is the key', addressing the issue of small dormant pension pots. His paper recommends a combination of virtual aggregation and physical aggregation, with large aggregator pension schemes competing to hoover up small pots.
In his paper, Johnson says that Aviva's alternative proposal is that employees' pots should stay with their previous employer. This is not what we are suggesting at all.
Aviva's joint proposal with Hargreaves Lansdown is that everyone has their own pension and carries that with them throughout their working life, in a similar way that they have one bank account into which new employers pay their salary. In 2018, once all employers have staged and eligible employees have been enrolled, the pension account that people have at that time will become their default account. However, everyone will then be free to switch that to any pension of their choice that meets the automatic enrolment quality standards.
Aviva and Hargreaves Lansdown's joint proposal, ‘One member one pot' (OMOP), puts the individual at the centre of their own retirement plans. The Australians, after years of persevering with a system similar to that in the UK, have moved to an individual account system to solve the problem of their millions of ‘lost pots'.
Michael Johnson's paper is a welcome contribution to the debate but the solution he proposes is complex, unworkable and has already been rejected by government. However, one aspect of his proposals, the virtual aggregator, is worthy of further consideration, as this could ultimately allow people to see all of their existing pensions in one place.
In contrast, Aviva and Hargreaves Lansdown's proposal for a one member one pot system is the ultimate in simplicity and cheap to operate. Moreover it puts the employee in charge of their own pension for the first time. If we want people to take responsibility for their own retirement, then empowering them to take care of their pension is an obvious first step.
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