Written by Ben Cocks on Sunday 19 May 2013
The DWP recently published further detail on its plans to consolidate post auto-enrolment pension savings with an automatic ‘pot follows member’ pension transfer initiative. Unfortunately, the paper has raised the spectre of a another big government IT project with all the associated risks of spiralling costs, late delivery and damning headlines. Given the current fragile state of the pensions industry I’m not sure we can cope with any more bad publicity. To be fair to the DWP, this isn’t necessarily what they intended and there are some much more palatable options in the paper, but it’s been enough to start the big government IT suppliers circling.
One of the options in the DWP paper is a ‘member driven’ approach whereby each employee leaving a company is given a paper form with their current pension details to hand in to their new employer. The simplicity of this approach is appealing. All the mechanics of the transfer can be handled by the existing open pension transfer mechanism created through the good work of TISA and the UK Funds Market Practice Group (UKFMPG). Clearly, there is a risk that the employee may not remember to hand in the form and the new pension provider would never initiate the transfer, but with no new IT build the benefits of consolidating small pensions could be introduced much earlier and at a much lower cost to the industry.
The other option discussed in the paper is a ‘pot matching IT solution’. If at some point the DWP do decide to pursue this approach then I would urge them to minimise the scope of the centralised IT element. All that’s required is a simple registry of qualifying member pensions designed to dovetail with the TISA/UKFMPG pension transfer process.
The downsides of an all singing and dancing government run IT system are not limited to cost overruns. It will impose committee designed processes on providers, duplicate and possibly undermine the good work of TISA and UKFMPG, and stifle the innovation that can realise the operational efficiency so sorely needed in the pension industry.
So please, DWP, keep it simple.