Veteran pension campaigner Ros Altmann is calling for changes to the small pot proposals in the Pension Schemes Bill, which would lengthen the time needed for a pension to be deemed ‘lost’, and strengthen requirements on providers to find customers before consolidation.
Currently proposals state that small pots below £1000 could be moved to an authorised “default consolidator” after just 12 months, if no new contributions have been made over this period.
Altmann says this timeframe is too short, and risks including the pensions of many women on maternity leave or taking time out for childcare.
She says: “This is far too short a timeline – many people – especially women – could take more than 12 months off work for childcare and when they return, their pension pot may have been moved.
“This needs to be amended to two or three years, which would be fairer for members.”
She adds that default consolidation should only happen after a provider has made proper efforts to contact the member.
Altmann points out that it isn’t just women who will be affected. “Twelve months is too soon to decide if a member has lost or forgotten their pot. If you are still young, or if you have a career break at any age, you may be happy to just leave your pension alone for a couple of years, and then start paying into it again.”
Altmann adds that small pots are generally uneconomic for providers to run, so they are keen to see them moved.
She says this legislation is well intended, as it seeks to amalgamate as many small pots as possible in order to improve the overall efficiency of the industry. But adds: “Member interests must not be overshadowed, and some adjustments are needed to avoid ending up doing harm, rather than good.
“This small amendment to the current Bill would seem to offer a route to avoiding some of the obvious pitfalls of selecting too short a timescale.”
Altmann also called for more thought to be given around the timing of these reforms. She says it makes sense for these change to be implemented after the pensions dashboard is up and running. This is due to be operational within the next couple of years. “Waiting would be sensible. This would give people time to find their lost pots themselves and make their own decisions about whether or where to move them.”
Finally, Altmann also said more questions need to be asked around these default consolidators. “The Government vision is to allow bulk transfers of someone’s pensions, without their consent. The measures will create a new ‘Small Pots Data Platform’, that can identify people’s pots and match them to that person’s largest existing consolidator pot, to build up more bigger funds automatically.”
She said while Government and regulators will select a few consolidator schemes that are deemed to offer good value, there is clearly the potential for consumer detriment, particularly if these providers hit a period of poor performance. “Just because a regulator has approved these schemes, does not mean they will all remain high quality. There may be scant redress for a member who is moved to a scheme that turns out to be worse for them than the one they left, so it is clearly important to ensure strong safeguards at the start of the process.
“The Bill gives providers the power to move these small pots without member consent, so it is vital to ensure every effort has been made to trace the members and ask whether they agree to the move.”
She adds that she hopes these amendments will be made to the Pension Schemes Bill when it returns for the report stage.