A ministerial statement issued last week put key policies such as pot follows member and collective defined contribution on hold. Helen Morrissey gauges the response.
- The government has put pot follows member, CDC and defined ambition on hold
- The pensions minister is focusing on auto-enrolment, state pension and reviewing retirement income flexibilities
- Many in the industry doubt these policies will be revived.
Pot follows member, collective defined contribution and defined ambition were all important policies for the previous pensions minister. However, a ministerial statement issued last week threw a spanner in the works by announcing all three policies were on hold.
According to the statement the delay will allow government and the industry to focus on embedding retirement income reforms as well as offering more support to the 1.8m small to medium employers due to go through auto-enrolment. Communicating changes to state pension has also been highlighted as a key priority.
The statement said: "The time is not right to ask the pensions industry to absorb the new swathe of regulation that would be needed to make such further reforms work effectively. The market needs time and space to adjust to the other reforms under way and these areas will be revisited once there has been an opportunity for that to happen."
We need to ensure that people are being looked after and have access to good quality products in both the accumulation and decumulation periods that they want to engage with. The overriding aim of all of these reforms is to improve people's later life.
The move prompted speculation that the policies were not just being delayed but were being ditched.
"I would say this means that pot follows member is probably at an end," says Origo's head of commercial marketing Richard Clark. "The subject of small pots still needs to be solved in time but we have to ask if pot follows member is the way to do it."
In a speech to National Association of Pension Fund Conference delegates pensions minister Baroness Ros Altmann said the issue of small and stranded pots needed to be addressed but said she wanted "to see how the landscape developed".
"I would love to see a pensions dashboard but who should develop it - the industry or government?" she said.
According to Clark such comments are a clear indication of a shift away from the pot follows member policy.
"I felt the pensions minister gave a clear statement on the pensions dashboard and this is an area we want to take a lead on," he says. "We are pleased with the clarification and can now work on what we think this dashboard should look like."
Collective defined contribution
Another key policy put on hold was that of collective defined contribution (CDC). However, Altmann was at pains to say she believes there is a place for risk sharing and did not rule out returning to the policy.
"We have to protect DB [defined benefit] as millions of people rely on it for their retirement income and we also have to develop DC further," she said. "I am of course interested to see if there is a middle way to be developed between DB and DC which could be a future reform. I feel that with this we are either a bit too early or else too late. If it had happened ten years ago then I feel that it might have worked."
Speaking exclusively to Professional Pensions Altmann said risk sharing would have a place but ways of doing it would need to take into account the evolving pensions environment.
"People will want to look at risk sharing but the retirement income flexibilities do change the landscape for both CDC and defined ambition," she said. "We need to get used to how these reforms bed in before we can revisit this."
She continued saying that even if work was to continue on CDC, regulation would not be in place until at least 2018 and for now the DWP has other priorities.
"We have to correct the myths that have sprung up around the flat-rate state pension," she said. "We need to help people understand how it works. We are on track for a smooth roll out and people will have a better idea of what they will get from the system than they did before."
She continued: "We are also revolutionising private pensions and auto-enrolment has been a great success. However, we can't be complacent as only 5% of employers have actually gone through the process as yet."
She added that a major communications programme is due to be launched to promote workplace pensions.
"We need to ensure that people are being looked after and have access to good quality products in both the accumulation and decumulation periods that they want to engage with," she said. "The overriding aim of all of these reforms is to improve people's later life."
Altmann's predecessor Steve Webb said he understood the rationale behind the decision to delay these policies and said he hoped to see further progress made on them in future.
"I don't have an issue with the short-term issues identified here," he said. "It has to be right that we need to see auto-enrolment through to the end and reviewing the pensions freedoms is also important. There is only so much that can be done in one go and the foundations are in place for later development. However, issues such as small pots and increasing auto-enrolment minimum contributions will need to be addressed at some point."
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