An industry that is “good at admiring the problem” and “letting perfect be the enemy of good” needs to unite in the common interests of members and solve the UK’s long-running small pension pots issue, according to a collaboration of retirement experts.
The comments were made at a ‘Big Red button’ roundtable event in London, one in which industry figures debated how the challenge of small pension pots could to a large extend be solved relatively quickly by providers coming together to switch pots under £1,000 by matching them to the biggest provider.
“Our industry is very good at admiring the problem. It is time we move onto asking what are realistic goals, then setting out to achieve them,” said one industry professional at the Chatham House rules event.
According to data collected by industry pressure group ‘The Small Pots Club’, there are currently estimated to be 15m small pots in the UK. Of these, more than 5m are pots of a size less than £100. The annual cost burden of managing the pots is estimated to be around £90m.
Speaking at the roundtable event, Andy Cheseldine, professional pension scheme trustee at Capital Cranfield, noted a still protracted timetable for solving the small pots issue: “We, the industry as a whole, are not in a great pace financially. Most people I spoke to welcome the government’s focus on small pots and mostly welcome the solution.
“But it’s quite a long way off, 2030 at the earliest. In practice, it’s probably going to be after that. Meanwhile, both the industry providers and members are all haemorrhaging money for no great benefit,” he said.
A common theme during the roundtable was continuing frustration with the small pots issue leading to increased fees and lack of investment potential for a member. Debate also centred around whether engagement was a solution, as opposed to simply forcing through reforms with limited communication with members who may be indifferent to a retirement pot due to its relatively small size.
Samantha Seaton, co-chair of UK government body the Smart Data council, says: “To me, if there is a solution the industry could do, we shouldn’t rely on the government. And it’s probably some that we have to ourselves, and some of the government will have to, you know, help us sort out.”
The group debated an approach whereby participant providers submit small pot data to a ‘black box’ that matches individuals’ assets by a unique identifier. They can then be attached to the individual’s biggest pot, or to the current active pot. Providers wanting to participate can do so on either a lose-and-receive basis or a receive-only basis, or a lose-only basis. They can also pick the pot size threshold at which they wish to participate.
Trustees at the event raised the issue of concern over potential claims in the event that individuals’ charges were increased significantly, although given the size of the pots involved, any losses could be trivial. It was also pointed out that trustees are often comfortable with bulk transfers where most but not necessarily all members are better off. Overall, member outcomes would, on average, be improved, as some individuals could end up paying one administration charge rather than two, and costs across the industry generally would be reduced. Additionally, engagement could be increased by bigger pot sizes.
One expert at the event highlighted that arguably the biggest loss individuals could experience would be pots with an access age of 55 not 57. If these were transferred, this flexibility could be lost. But these pots could be excluded from the first stage of the project.
Several large providers at the event expressed interest in participating in the scheme, as they perceived it would save them and their members costs and improve member outcomes. Some delegates at the event suggested resistance from other providers to participating in such a scheme could result from a desire to retain members whatever the cost in a bid to present as as big a scheme as possible. Alternatively, schemes hoping to one day participate in the proposed default consolidator model might not want to take part.
Issues such as the consolidation of small pots have persisted for decades, with former pensions minister Steve Webb recently bemoaning the perceived lack of progress since the concept of ‘magnetic pensions’ that follow a member throughout their career was first introduced in the 2014 Pensions Act.
