The Department for Work and Pensions is pursuing the wrong approach in its efforts to develop pension pot transfers, according to the Centre for Policy Studies think-tank
The DWP favours the introduction of a 'pot follows member' (PFM) mechanism, whereby pension pots are automatically transferred when an employee moves job. But the CPS said this process was slow, plagued by paper-based bureaucracy and mounting costs.
Its report, Aggregation is the key: retirement saving nirvana for consumers, published today, makes the case for virtual aggregation - an online portal where people can access information on all their pots of retirement income. This web-based tool 'should enable people to transfer their retirement assets, between industry providers... using a paper-free process', the think-tank said.
It cited a DWP survey, which found that just 21% of employees preferred PFM whilst 61% wanted an aggregator approach.
'The DWP would appear to have ignored what most [workers] actually want,' said Michael Johnson, the report's author.
He added that virtual aggregators can help to people engage more with their retirement savings, initiating pension pot transfers themselves. This would also lower welfare costs.
Morten Nilsson, chief executive of Now Pensions, agreed with the CPS. He said the DWP should undertake further modelling to examine the PFM initiative against the online model.
'Auto enrolment is a massive step towards solving the retirement funding crisis but one of its by-products will be a proliferation of small pension pots,' he explained.
'While pot follows member... could ultimately be the right solution, it's imperative that all options are thoroughly explored.'
But the DWP insisted that its PFM approach was the right one. A DWP spokesman told The Actuary that the department's priority was to implement an automatic pension transfer system.
'Pot follows member is the best way to achieve that,' the spokesman said.
'[It] gives people the confidence of knowing their pension savings are consolidating in their current workplace pension when they move jobs rather than languishing in separate pots for years.'