Jack Jones looks at the response of an underwhelmed industry to DWP's plans on small pots.
The government’s latest proposals on what to do with small pots have failed to enthuse the industry, despite widespread recognition that the issue must be tackled.
The main gripes are a lack of detail in the plans – laid out in response to a Department for Work and Pensions consultation launched last year (PP Online, 15 December 2011) – and dissatisfaction with the chosen method of combining pots.
Of the three possibilities considered in the consultation the department has opted to pursue the option which will ultimately see pots following members from job to job.
This goes against the advice of the majority of respondents, who favoured using one or more aggregator schemes to combine workers’ funds, as reported in PP in March (PP Online, 29 March). Two thirds of respondents who wanted to see an automatic transfer system backed the aggregator model with just a fifth supporting pot follows member.
National Association of Pension Funds chief executive Joanne Segars warns the proposals create the risk of a “pensions lottery” where people could be automatically transferred into lower quality schemes.
The lobby group calculates that if someone with a pension pot of around £10,000 and an annual management charge (AMC) of 0.5% was then moved into a pension with an AMC of 0.9% a year, they would lose around £1,500 or 10% of their pot after 25 years.
Segars says: “We believe a better solution would be to allow people to transfer their pensions into large-scale, low-cost aggregators, which are simpler and better placed to deliver good member outcomes. We urge the government to reconsider its preference for pot follows member.”
Society of Pension Consultants president Roger Mattingly says pension charges will have to become far more transparent to address the problem Segars raises. He says the opaque and misleading charges levied by some providers at the moment make it difficult to compare schemes.
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