By Dale Critchley, Technical Reform Manager, Corporate Benefits - Friends Life, part of the Aviva Group 
Secondly, with the arrival of auto-enrolment, this trend will increase: even relatively short-lived jobs might lead to a new pension pot being created.
Even if an employee does trace all their individual pots down, the outcome can be far from satisfactory. Ten different pots on ten different systems are not only difficult to manage but they make it difficult to get full picture of what to expect in retirement, and thus do not help to engage employees with their pension savings. They also make it harder to obtain best value retirement income products.
It’s not just employees who struggle. From the administrative perspective, small pots are inefficient, and reuniting individual savers with a long-lost pot can take a good deal of time and effort.
Following extensive consultation, DWP has concluded that the most effective remedy to this challenge would be to introduce a “pot follows member” model.
Under this scheme, whenever a new member is added to a pension scheme, the provider must check a series of databases to ascertain whether the member has an old pot of less than £10,000 left behind in a previous qualifying pension scheme. If they find one, they should arrange to transfer the small pot into the new scheme. Initially the transfer will only take place with the member’s explicit agreement, but it is proposed that this becomes an “opt-out” arrangement in the future, where the default approach is an automatic transfer.
In theory, this sounds a win-win scenario: the member has a larger pot and fewer hassles; the challenge of small scheme administration is reduced and larger pots may mean greater employee engagement with their savings.
Yet on closer inspection it’s not so clear-cut. The current transfer process is costly and inefficient, especially for smaller schemes that do not use electronic messaging systems. Security of data and the potential for fraud are also big issues, with the latter representing a major driver of the opt-in approach that will be adopted at outset.
The focus to date has been on finding the most efficient solution to the problem. But perhaps it’s worth looking at the challenge from a different angle.
A pension dashboard - a central repository for pension information - which can return a full picture of an individual’s pension provision from the input of a few personal details may be the answer.
The FCA put forward the idea of a dashboard as a spin-off from the pot follows member database, but maybe the dashboard approach should lead the way in providing an answer to the engagement problem, and a building block towards physical pot aggregation.
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