Jointly convened by the Pensions and Lifetime Savings Association (PLSA) and the Association of British Insurers (ABI), the Small Pots Co-ordination Group comprises experts from a range of pension providers, industry, regulatory and consumer bodies and stakeholders who have already been addressing some of the admin challenges identified.
In its role to look at the feasibility of a member exchange exercise, starting with master trusts and to tackle the admin challenges for low cost transfers, mindful of the regulatory context, the Group is seeking to find a solution to the growing number of small deferred pots in the pension system to make the system work better for scheme members.
The Group has begun work to consider the administrative groundwork necessary to progress the potential solutions (outlined by DWP’s report last December).
Resolving the problem is complex and the group is prioritising actions on the feasibility of a member exchange pilot, learning from experiences of Pensions Dashboards (data matching and data standards) as well as forthcoming research, that looks to identify the number of small pots held by scheme members across the industry.
The Group has found that eventual solutions must address the existing stock of small pots but also stem the flow of new small pots. They must also work for trust- and contract-based pensions, navigating the legal and regulatory differences between the two structures. Solutions must also combine ‘push’ solutions, which allow pension providers to consolidate pots; and ‘pull’ solutions, which will allow pension savers to find and consolidate pots more easily on their own.
Adding to the complexity is an ambition to ensure whatever solutions are proposed work in conjunction with other ongoing interventions in the industry, and that they are as simple and low cost as possible to derive the maximum future benefit for pension savers.
The input of expert working groups – on customer value, low-cost transfers and data standards – are all reflected in this initial report. The potential saver benefits must be balanced against the potential saver detriments of an automatic small pot consolidation solution, and early assessments have been made alongside the identification of future evidential needs. Low-cost transfers are a necessary condition of progressing to consider small pot consolidation models in more detail, as without these the net gain for savers from consolidation is likely to be severely curtailed.
Future transfer processes have been considered, and further areas for assessment identified. Current individual member-initiated transfer processes have been mapped to identify where costs occur and discover potential efficiencies. Progress has also been made on mapping existing data requirements and assessing the implications for matching protocols where data availability and quality has been identified as a key issue.
The Small Pots Co-ordination Group has identified the need for further work on administrative issues such as how to identify and match savers with pots and issues with data quality. It has also noted that some regulatory changes might be needed in the future, if a cost benefit analysis supports this.
The report suggests where there are opportunities to fix the small pots issue and reflects the opportunities and the challenges that the group is looking at next.
Guy Opperman, Minister for Pensions and Financial Inclusion, said: “I am pleased to support the publication of PLSA and ABI’s small pots co-ordination group report. This report enables us to further understand the positive progress that is being made by the small pots industry group to tackle the administrative challenges of deferred small pension pots.
“I encourage the industry to continue in their efforts to understand how far they can progress consolidation solutions within the existing legislative framework.”
Andy Cheseldine, Chair of Small Pots Co-ordination Group, said: “I am very impressed with the progress the group has made so far in getting to grips with the complexity of this project and forging a way forward. We believe we have enough evidence to get started on solutions. Further research will let us hone our recommendations and provide the complete evidence necessary to justify any new regulatory or legislative changes.”
Joe Dabrowski, Deputy Director of Policy at the PLSA, said: “Without remedy there are expected to be 27 million small pots by 2030 – an outcome which would clearly not be in members best financial interests, or support effective engagement. It is a complex problem but one that must be solved, and the sooner we can do so the better.
“The Co-ordination Group has made great strides in identifying the practical challenges that need to be overcome and we’re incredibly pleased by concerted effort across the industry, and ongoing support from DWP and regulators to find and enact solutions, including legislative fixes that can be applied across the sector.”
Rob Yuille, Head of Retirement Savings at the ABI, said: “More must be done to help savers with multiple small pension pots to get the most out of their retirement savings. The report today outlines the work industry has undertaken over the last six months to identify ways to increase the consolidation of small pension pots and has shown that our sector can go further, exploring ways to build on our track record in improving transfers. This provides a good base for the next stage of the project which will include building the evidence base for future legislative changes to implement mass market automatic small pot consolidation.”
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