Radical Government plans to introduce an automatic pension transfer system are under threat because the industry is refusing to pay up to £40m to build the infrastructure necessary to implement the reforms.
In July, pensions minister Steve Webb confirmed plans to introduce a new system where automatic enrolment pension pots would move with employees automatically when they change jobs.
Officials at the Department for Work and Pensions held talks with trade bodies and industry representatives last week about the practicalities of implementing the changes.
Money Marketing understands the pension industry is refusing to fund the reforms and instead wants the Government to stump up between £20m and £40m to build a “central information hub” to facilitate auto-transfers.
A senior ABI member says: “The Government wants us to automatically transfer people’s pensions from A to B. That is fine but we told them we need a hub to transfer data and information through. It wants the industry to build it and pay between £20m and £40m in the process but we will not and the Government cannot make us. This could be the downfall of the reforms.
“If the Government is prepared to fund it, a private sector provider could build it and the money could be recouped through levies. But it would have to be commercially viable so the levies would need to be quite high.”
Another source who was present at the DWP meeting says: “It is the same situation as Nest. Nobody was going to build Nest unless the Government came along and said it would pay for it up-front with taxpayer money.
“Getting the whole industry to buy into it and pay for the information hub up-front will be extremely difficult because there are so many different vested interests.”
This follows concerns raised by the industry about the potential risk of consumer detriment if, for example, a saver is automatically transferred from a low-charge scheme to a high-charge scheme.
Hargreaves Lansdown head of pensions research Tom McPhail says: “The DWP should focus on improving the existing pension transfer system and we want to work with it to do that.”
A DWP spokeswoman says: “Having set a direction of travel in the consultation response document published in July, we are now working closely with the industry and other interested parties to explore how automatic transfers could operate.
“As a part of this work we are looking at what systems might be involved and how automatic transfers as a whole might be implemented and funded.”