Written by Ben Cocks on Monday 28 October 2013
The DWP small pots initiative has prompted some very earnest discussion around some very whacky ideas. I accept that the ‘pot follows member’ approach favoured by Steve Webb still has some challenges to work through and its detractors have some legitimate concerns but, when looked at from a down to earth operational perspective (as we tend to do), the proposed alternative solutions seem quite impractical altogether.
The first of these is the virtual aggregator where an employee can view all their pension pots from all their old employers and pension providers in one place. Given that the operations of most life offices are so complex and sprawling they struggle to provide a consolidated view for their own customers, providing such a view across the whole industry simply won’t be practical any time soon. The second is ‘scheme follows member’ or ‘one member one pot’ where each new employee is allowed to continue contributing to the scheme of their old employer. But again, the operational practicalities of every employer engaging with every pension provider are unthinkable; dealing with just one seems to cause enough headaches.
And of course in both cases the pension pot of the long suffering employee is left languishing with the old provider, quite possibly at less favourable rates than their new employer’s scheme. Supporters of each approach will refer to new technology that can solve the problem if the government is prepared to spend enough – but in my experience a big centralised government IT project is rarely the right answer to anything.
The ‘pot follows member’ approach at least addresses the problem in hand and if we can all get behind the TISA open standards approach to transfers then this can work without huge central spend. Perhaps of greater importance, creating a framework where customers can easily move their pensions between providers might also allow competition in the market to work more effectively. We’re supportive of the ‘pot follows member’ approach, we think it is a practical achievable solution to the small pots challenge, and we’re doing what we can to bring it about as painlessly as possible.