Auto-enrolment is about to suck many people into pensions for the first time, so the Government is anxious to make it work and minimise opt-outs.  Engagement is going to be key: convincing workers that pension saving is worthwhile. 

This won't be easy, and the Government has just made it even harder by deciding to remove the popular contribution refund option for members leaving trust-based money purchase schemes with less than two years' pensionable service. It's a lifeline for many, because two years' continuous service is required to qualify for statutory redundancy pay.

This decision accompanied the Government's response to last winter's consultation on improving transfers and dealing with small pension pots. With auto-enrolment set to trigger a huge rise in the number of small pots left behind as people move in and out of work, two problems will need to be addressed. The first is that they lose track of the pensions they have, and scheme administrators lose track of them. The second is that they end their working life with many scattered funds, each unlikely to provide an optimal retirement solution. Consolidation is highly desirable.

The answer is to be automatic fund transfer on leaving service (subject to conditions, including a member opt-out to leave the pension where it is).  Two models were proposed: 'pot follows member' to their next employment, and transfer to an aggregator fund. The latter has been discarded as it would distort the market, unless a very low upper limit was set on funds to be transferred - which would vitiate the exercise. The formidable administrative burden with 'pot follows member' is to be addressed by a new 'Policy Engagement Group'.

Some commentators have suggested a third solution: a 'virtual aggregator' - akin perhaps to wrap accounts or platforms - which would at least address the first problem, making all pots easily visible online. The Government has acknowledged that a central registry of dormant pots available for consolidation will be needed, but so far seems to see it as a resource for employers and providers. The obvious host seems to be HMRC. As so often, the Australians are ahead of us: their Tax Office's SuperSeeker system provides a secure, convenient online service to help individuals keep track of and manage their pension funds.

Ian Neale, Director Aries Pensions UK