Written by Malcolm Small on Thursday 2 May 2013
Last week, the Department for Work and Pensions (DWP) issued the snappily-titled paper “Automatic Transfers: Consolidating Pension Savings”. The idea behind this is to avoid the build-up of small, poor value pension “pots” which was always likely as a by-product of automatic enrolment into pension saving. Small pots limit retirement income choices and value, and are easily lost and forgotten. TISA has been active in helping the industry work towards solutions to this problem. If left unaddressed, DWP estimated that 50 million small dormant pots would have been created by 2050, with 12 million of these under £2000 in value.
The idea of “pot follows member” has been around for a while, but this is now confirmed as the direction of policy travel, rather than an “aggregator” model. All pension pots under £10,000 and in a Defined Contribution (DC) type scheme will, from a specified date in the future, be automatically transferred to the new employer’s scheme when an employee changes job. This will lead to an estimated 1 million transfers a year taking place, or just under 20,000 each week. This is a huge increase on current volumes. A preference is expressed within the paper for an IT solution to matching members’ pension pots with their new employers, although the development of a fall-back paper based solution is also envisaged. If the pensions industry does not undertake to build such a system itself, DWP will construct it and back-charge the industry.
Whilst I very much hope the industry will do this communally rather than waiting for the DWP to do it for them (and I will be doing everything I can to help them do this), we must be very concerned about the back-stop of a DWP build. This is not to denigrate the Department, but the history of large-scale public sector IT builds is one of almost unmitigated disaster, with a few shining exceptions. If this is the preferred direction, experience tells me that we need to build a solution that is designed by, and for, the industry. Waiting for someone else to do it is likely to result in a “camel”, a horse designed by a committee.”