Written by Ben Cocks on Wednesday 19 August 2015
I like the Pot-Follows-Member (PFM) policy. Obviously, it will help avoid a proliferation of small and easily forgotten pension policies but more importantly it will show both customers and the industry that pensions can be quickly and easily transferred between providers. Without this free flow of assets between providers it’s hard to see how pension freedoms can be effective or more generally how competition can work at all.
Not everyone is happy with this though. Of all the changes that Steve Webb introduced it was PFM that upset the industry’s ‘vested interests’ most. Webb says, ‘I still remember a meeting with leading industry figures where you could just see them round the room thinking ‘hang on – we are going to have a net outflow of funds here, I don’t like the look of this’ or ‘I am quite enjoying all this money just sitting quietly on my books – don’t prod it whatever you do.’ (Reported in Money Marketing, 10 April 2014.)
I really like the way the DWP has gone about implementing the policy. It was a refreshingly open and collaborative initiative by any standard, but by government standards it was astonishing. A series of no-holds-barred discussions with a wide cross-section of industry representatives on all aspects of policy implementation ensured the DWP came up with the right answer and built substantial support for the policy along the way.
The resulting operational, technical and legal framework provides both the foundation for PFM and the solution to the wider pension transfer problems that are currently the subject of a Treasury consultation. In particular, the commitment to open standards removes the need for cumbersome centralised government systems and avoids any one part of the industry gaining a monopoly on transfers. And the commitment to a ‘white list’ of providers with accompanying legal obligations will resolve much of the transfer paralysis caused by pension scams. I trust the Treasury is paying attention.
But since February we’ve heard nothing from the DWP. Theoretically the plan is still for PFM to start live operation in October 2016 with 20 of the largest pension administrators but the silence from the DWP is becoming deafening. The ‘vested interests’ have seen this an opportunity to start questioning the sanity of PFM once again with various articles appearing in the press. While the industry has continued working hard towards the implementation of PFM, and has now even published detailed draft technical definitions, the continuing DWP radio silence is beginning to eat away at the good will and enthusiasm created by the DWP over the course of last year.
This leaves pension administrators between a rock and a hard place. If they are to be ready for the Oct 2016 deadline then they will need to start their implementation projects in anger within the next month or so. So either they risk spending money on a PFM implementation that might never be used or they risk missing the DWP’s very clearly stated deadline.
So here’s our plea to the DWP – or perhaps more correctly to the new pension minister, Ros Altmann. This is the right policy, with the right approach at exactly the right time. The industry needs this and we can deliver it. Come on, Ros, give us the word and we shall make it so.
This article first appeared in Money Marketing 18/08/2015