The Australian government is set to introduce an automatic consolidation system for pension accounts whereby individuals with more than one pot are nudged into aggregating them.
The policy, known as auto-consolidation, forms part of a bid to cut Aus$1bn of costs from Australia’s compulsory superannuation system. Some UK pension providers have expressed interested in a limited form of auto-consolidation in the UK.
Jeremy Cooper, author of a government review into the governance, efficiency, structure and operation of Australia’s superannuation system, said the policy was needed to increase cost efficiency through scale. Australia currently has 3.3 superannuation funds per employee. Cooper added that removing Aus$1bn of costs from the system would have the same effect as a 1 per cent increase in employer contributions.
Speaking at a Friends Life Global Forum event in London on Tuesday, Cooper said policymakers are yet to decide whether individuals with several superannuation funds would see their pots rolled into their biggest fund or into the one they have contributed to most recently. Discussions are ongoing to determine whether the policy would only affect funds below a certain value, or would see all of an individual’s funds accrued with previous employers rolled into the superannuation fund of their current employer.
Under the scheme individuals with multiple superannuation pension funds will receive a letter notifying them that funds will be transferred to another provider within 30 days unless they respond saying they do not wish that to happen.
Cooper said: “Auto-consolidation would clean out the Augean stables of our superannuation system. The investment case for five accounts each with Aus$6,000 in is completely different to that of one with Aus$30,000 in.”
Friends Life managing director, corporate benefits Colin Williams said: “Introducing such a system in the UK for funds below a certain value would take a considerable amount of cost out of the system as it currently stands.”