Small pots industry group to look at nuts and bolts of consolidation
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The Pensions and Lifetime Savings Association and the Association of British Insurers have jointly set up an “industry co-ordination group” to take forward the recommendations of the DWP’s Small Pension Pots Working Group, focusing on the administration processes that will underpin a future consolidation model.
Small deferred pension pots are considered a problem in the UK, where pension pots do not automatically follow a member who changes employer. This is leading to a fast-growing number of small deferred accounts with defined contribution providers in particular. These can be uneconomical to run, and present the risk of poorer outcomes for members if they forget about the existence of pots or if the pots are eroded by fees.
The Pensions Policy Institute estimates that the number of small deferred pots in master trusts alone could balloon from 8m to 27m by 2035, with the average master trust account holding around £1,000. It has previously suggested that some form of centralised transfer system will be necessary to tackle the problem.
Quiet move away from dashboards as consolidation solution
The government’s own small pension pots working group reported back in December, finding among others that member-led consolidation alone is unlikely to change the trend in the growth of deferred small pots, but has batted the ball into the industry’s court, saying it should focus on enabling auto-consolidation.
The PLSA has said that the new Small Pots Co-ordination Group will “direct relevant work across the industry, focusing on the administration processes that will underpin a future long-term consolidation model in the interests of savers”.
It will examine existing data-matching requirements, common data standards and the requirements for a low-cost transfer process for mass consolidation. A progress report will be published by the group in the summer, it said.
The group consists of:
Andy Cheseldine (chair), Capital Cranfield Trustees
Joe Dabrowski, PLSA
Rob Yuille, ABI
Kim Gubler, Pensions Administration Standards Association
Adrian Boulding, Now Pensions
Phil Brown, The People's Pension
Zoe Alexander, NEST
Carol Knight, TISA
Stephen McDonald, Which?
Sarah Luheshi, Pensions Policy Institute
Rob O'Carroll, DWP
Gemma Mullis, Chartered Institute for Payroll and Pension Professionals
Tim Smith, Herbert Smith Freehills
Dale Critchley, Aviva
Jasmine Smiley, Fidelity
Ronnie Morgan, Royal London
The first meeting took place on Wednesday, attended pensions minister Guy Opperman, who said that a solution was imperative given the risks that the growth of deferred small pots presents to savers and their ability to plan for retirement.
“I'm very pleased that representatives from across the industry are now convening to consider ways to combat this, and their progress reports will provide valuable insight for tackling this issue together,” he added.
Professional trustee Andy Cheseldine, who chairs the new group, said auto-enrolment has been a victim of its own success as members build up pots for almost every job. “We need to find a consistent and sustainable way to protect these members from the costs and complexity of multiple pension accounts,” he said.
What is the best solution to the small pots issue?