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Ben Cocks: DWP’s deafening silence on pot-follows-member

DWP-Department-Work-Pensions-700x450.jpg

I like the pot-follows-member policy. Obviously it will help avoid a proliferation of small and easily forgotten pension policies but, more importantly, it will show both customers and the industry that pensions can be quickly and easily transferred between providers.

Without this free flow of assets it’s hard to see how pension freedoms can be effective, or more generally competition, can work at all.

Not everyone is happy with this though. Of all the changes that former pensions minister Steve Webb introduced it was PFM that upset the industry’s “vested interests” most.

Speaking to Money Marketing in April last year, Webb said: “I still remember a meeting with leading industry figures where you could just see them round the room thinking ‘hang on – we are going to have a net outflow of funds here, I don’t like the look of this’ or ‘I am quite enjoying all this money just sitting quietly on my books – don’t prod it whatever you do’.”

I really like the way the DWP has gone about implementing the policy. It was a refreshingly open and collaborative initiative by any standard, but by government standards it was astonishing. A series of no-holds-barred discussions with a wide cross-section of industry representatives on all aspects of policy implementation ensured the DWP came up with the right answer and built substantial support for the policy along the way.

The resulting operational, technical and legal framework provides both the foundation for PFM and the solution to the wider pension transfer problems that are currently the subject of a Treasury consultation.

In particular, the commitment to open standards removes the need for cumbersome centralised government systems and avoids any one part of the industry gaining a monopoly on transfers.

And the commitment to a ‘white list’ of providers with accompanying legal obligations will resolve much of the transfer paralysis caused by pension scams. I trust the Treasury is paying attention.

But since February we’ve heard nothing from the DWP. Theoretically the plan is still for PFM to start live operation in October 2016 with 20 of the largest pension administrators – but the silence from the DWP is becoming deafening.

The “vested interests” have seen this as an opportunity to start questioning the sanity of PFM once again, with various articles appearing in the press. While the industry has continued working hard towards the implementation of PFM, and has now even published detailed draft technical definitions, the continuing DWP radio silence is beginning to eat away at the goodwill and enthusiasm created over the course of last year.

This leaves pension administrators between a rock and a hard place. If they are to be ready for the October 2016 deadline then they will need to start their implementation projects in anger within the next month or so.

So either they risk spending money on a PFM implementation that might never be used or they risk missing the DWP’s very clearly stated deadline.

So here’s our plea to the DWP – or perhaps more correctly to the new pension minister, Ros Altmann. This is the right policy, with the right approach at exactly the right time. The industry needs this and we can deliver it.

Come on, Ros, give us the word and we shall make it so.

Ben Cocks is director at Altus

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Comments

There are 6 comments at the moment, we would lover to hear your opinion too.

  1. A good read, Ben – but surely it’s about pensions dashboard now, as a dashboard avoids any potential consumer detriment from moving to a less attractive scheme. Isn’t PFM old hat?

  2. It’s a stupid idea. It will only need one person conned into a “silence gives consent” transfer out of a scheme with valuable guarantees, or a person unfortunate enough to have a large chunk of his savings wiped out by time out of the market at the wrong time, to end the political career of whoever is in charge. No-one wants to be that person so the silence will become ever more deafening until it is dropped entirely.

    It is a classic case of a solution in search of a problem. Especially as small forgotten-about pensions from a briefly-held job can now simply be encashed with virtually no consequence. In the author’s own words: “It will help avoid a proliferation of small and easily forgotten pension policies” – no evidence that this is a problem; “but, more importantly, it will show both customers and the industry that pensions can be quickly and easily transferred between providers” – pie in the sky.

  3. And, perhaps tellingly, Michael Johnson is not a fan of PFM – and he is the one with the ear of Government at the moment.

  4. The idea behind PFM is to consolidate small pension pots into a meaningful fund to buy an annuity. Doesn’t the “freedom and access” world in which we now reside,somewhat negate this rationale?

  5. PFM can create a pot big enough to engage a consumer. And it can break the stranglehold on pension transfers. Only then can we have pension freedoms and competitive pressure on providers: http://www.professionalpensions.com/professional-pensions/opinion/2421054/will-the-life-offices-open-up-on-pension-transfers

  6. Current pension pot has TER of 0.5% new pension pot has TER of 0.75%. Anyone see the problem here. Theory and practice often don’t result in the same thing.

    People want the new flexibilities, and many cases don’t want to take advice, because they claim the public is responsible enough not to run out of money in retirement. And then people are proposing that we introduce a PFM regime which smacks of a nanny state where people aren’t responsible enough to keep track of their pensions. Can’t have it both ways.

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