THE ANSWERS:
Colin Williams, managing director, corporate benefits, Friends Life
Yes. The issue of small pension pots isn’t a new one but one that is likely to proliferate as auto-enrolment is launched. For a member, multiple small pots are more difficult to manage and on reaching retirement can make it more difficult to purchase a meaningful annuity in comparison to if they had one larger pot.
For the provider managing a large number of small pots is uneconomic and increasing administration costs may result in uncompetitive industry pricing. When the aim is to help increase fund sizes for those who have failed to save or save adequately for their retirement, it becomes clear that coming up with a viable solution to the small pots issue is just as crucial as getting people enrolled into a scheme.
The concept of auto-consolidation as proposed in Australia is certainly one option Auto-enrolment won’t necessarily result in auto-engagement of the UK population with long term savings and adopting a model whereby funds from smaller pots can be simply and easily transferred into larger funds should be seriously considered given the advantages larger pots offer.