Aviva to test 'low touch' pension transfer service

Aviva is to trial a ‘low touch’ small pot merging service with the Association of British Insurers (ABI), as the trade body steps up its work towards facilitating automatic transfers.

Aviva pensions marketing manager Alistair McQueen said it was talking to the ABI about trialling a simplified pensions consolidation service for existing members as automatic transfers were not yet permitted under regulation.

‘Aviva are very open to the auto-transfers. We need bigger fund pots so we need a solution…we are asking: can we amalgamate some of our own customers?’ he said. ‘We have over one million pension customers in Aviva who have often three schemes from different employers. So can we amalgamate these in sensible way?

‘At the moment the regulations require that someone transferring must give their authority. We are not allowed to automatically transfer. But we can move towards it with a simplified procedure. It would be low touch and secure and we want to see how regulator will react to that.’

McQueen said the greatest risk with small pot transfers came from ongoing scheme charges. For example, a customer could move from a scheme with higher costs and lose pension monies as a result as well as, possibly, guarantees and other features.

However, small pots are inefficient for providers to administer and customers can buy a bigger annuity by merging their funds into one big pot. Automatically transferring scheme funds would require providers to work much more closely.

McQueen said Aviva and other providers were looking at how life companies could be linked up via a central data management system.

‘An automatic transfer system looks like the best option at the moment. It would need a trading house and the industry would need to build one and I don’t know how much that would cost… And what would be the cost of a system like that, that would wire together pension companies? It would require a lot of data from the schemes, and they would all have to speak to each other and record, for example national insurance contributions and entitlements as they [scheme members] moved from job to job.’

Yvonne Braun, ABI assistant director of retirement said it was looking at how a central information handling centre could be built.

‘If we have an automatic mechanism to transfer between providers then we would have in the middle some kind of way of making sure we have all the information about the individual,’ she said. ‘But we need to a have a really good look at the feasibility and make sure the benefits exceed the cost. Whatever we build must deliver reasonably cheap seamless transfers that really work, otherwise it’s a pointless exercise.’