“One of the side-effects of auto enrolment will be a proliferation of small pension pots and it is right that the government should give this issue due consideration.
When we asked savers for their views*, half of those we spoke to said they would like to consolidate their small pension pots into one, and over a third (39%) said they would like their pension pot to automatically follow them when they went to a new company, rather than having to set up a new scheme with their new employer.
But, four in five (81%) said they would worry if their pension pot was transferred to a scheme which didn’t perform as well as the old one, and 86% said they would be concerned if their pot was automatically moved into a scheme where the charges were higher.
While the DWP’s proposal addresses the issue of charges, with transfers only taking place where the member is saving into a charge-capped default arrangement, there is absolutely no mention of safeguarding quality anywhere in its 47 page document.
It is still surprising that despite so much talk about quality and new initiatives designed to improve scheme quality, there is little effort to actually drive provider behaviour.
From my perspective, I would like to see only ‘licenced’ schemes permitted into the automatic transfer market. These schemes would have to meet minimum quality standards and have independent accreditation either in the form of the master trust assurance framework or Pension Quality Mark.
The cost of transfers also needs to significantly reduce, otherwise there is a very real risk of transfer costs eroding pot value.
The £10,000 limit should also be re-considered. The reality is that a £10,000 pot is still relatively small and given the rule of thumb that engagement occurs when a pension pot is the size of an annual salary, the limit should probably be more like £25,000.
A £10,000 limit also disadvantages players that operate predominantly in the core auto enrolment market as they will bear the brunt of the transfers while larger, more established, players retain their most profitable customers.
Implementing automatic transfers will be as big a task as auto enrolment itself therefore it is essential that the policy is built from political consensus and not rushed through.”
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