Opperman's consumer choice AE meeting draws ire of industry

Several firms including Hargreaves Lansdown will meet the minister in October to explore a variant of the pot-follows-member model akin to that currently in place in Australia, according to The Telegraph.

The initiative is designed to help end the UK’s small pots problem, caused by the increased job churn, meaning costs can eat into savings and members struggle to locate pensions.

Giving members the choice to switch provider would also drive competition in the auto-enrolment market, proponents say, and allow savers who become self-employed to continue saving.

Hargreaves Lansdown declined to comment on the reports.

I’m very surprised that Opperman is taking meetings on that. That to me is a waste of time

Mark Futcher, Barnett Waddingham

However, the idea was rounded upon by industry figures in the workplace arena, some of whom said its primary benefit would be to providers of retail pensions products.

“It’s about swelling the coffers of certain providers,” said Adrian Boulding, director of policy at mastertrust Now Pensions.

Boulding accepted that some might compare pensions to salary, and that employers would baulk at the idea of forcing their members to be paid via a particular bank.

“What it misses in trying to do that is the extra staff duties and services that an employer does with regard to a pension scheme, over and above just sending money on,” he countered.

Those services include choosing and monitoring an appropriate scheme, and using scale to pressure providers on fees, often in conjunction with professional advisers. If individual consumers were tasked with selecting their own fund, Boulding said many would find this advice too expensive.

“We know that only 10 per cent of the population in the UK use a financial adviser, and we know why,” he said. “If you follow this proposal then most people would be choosing their pension scheme without taking any professional advice.”

Boulding added that due to the duty on providers to check that the correct contributions are paid, employers would face an increased compliance burden responding to requests from every provider chosen by a member.

DWP goes cold

Despite the meeting, the Department for Work and Pensions has sought to squash rumours that it will introduce the measure. A government spokesperson pointed to the department’s response to the Work and Pensions Committee earlier this year, in which it said it had no plans to give consumers greater choice.

“We are sceptical that the volumes of members who will choose their own scheme will be high enough to drive effective competition between automatic enrolment providers,” the document read.

Proponents of the idea have admitted that member protection and employer burden are hurdles that must be overcome for the plan to work, but say auto-enrolment is in need of greater competition.

“On a fundamental level, if people were able to choose to direct their auto-enrolment contributions to a different pension – while retaining a default for those who don’t make an active choice – that could be a good thing,” said Tom Selby, senior analyst at broker and platform provider AJ Bell.

“As well as potentially boosting the buying power of consumers and holding auto-enrolment providers’ feet to the fire, it could also help deal with the problem of savers building up pensions with different providers over their lifetimes,” he added.

Consumers' ability to cut costs questioned

However, others doubt whether individual employees are on average informed enough to actually improve competition in the workplace arena. The UK’s auto-enrolment system has relied heavily on defaults, and the vast majority of savers are in their provider’s default fund.

“In theory, savvy consumers could exert competitive pressure on costs; in practice, most of us don’t switch utility suppliers or the like, and people would be unlikely to see a pension transfer as urgent if told that annual charges were 'only' going up by 0.1 per cent,” said David Robbins, senior consultant at Willis Towers Watson.

He agreed that large employers are able to act as informed buyers, and said that the UK’s small pots problem would only be solved if the majority of members actually made use of the option.

“If this is instead seen as something that only a small number of highly engaged savers would do, these are the people who would be most likely to transfer their pots anyway after ending that employment,” he added.

Admins unprepared

Mark Futcher, head of workplace wealth at Barnett Waddingham, agreed, and said it would cause untold administrative headaches.

“The whole infrastructure is just not set up in the UK to deal with pensions in that way and it would be an administrative nightmare – payroll systems and providers just couldn’t cope… I mean payroll providers couldn’t cope with auto-enrolment,” he said. “I’m very surprised that [Opperman] is taking meetings on that. That to me is a waste of time.”

Futcher said members “have proven that actually, if they take decisions on their own it is likely to be the wrong decision”.

Ultimately, it is just too late to make fundamental changes to auto-enrolment, he argued: “If that was a system that people thought was better it should have been rolled out with auto-enrolment.”