The Government faced a barrage of criticism over its pot follows member reforms from a “pantheon of pension experts” in the House of Lords yesterday.
Speaking at the Pensions Bill report stage in the House of Lords, the Government proposals were attacked by cross-party peers.
Former FSA chairman Lord Adair Turner, whose review gave birth to auto-enrolment, joined forces with Labour, former pensions minister Lord John Hutton and former cabinet secretary Lord Andrew Turnbull.
A Labour amendment favoured a central aggregator but allowed flexibility to introduce the option of a quality benchmark for pension schemes auto-transferred upon a job change.
This is instead of a simple “pot follows member” model that Labour says could run the risk of a person ending up in a poorly run pension scheme by default.
Lord Turner said pot follows member should not go ahead unless there is a clear charge cap in place.
He said: “There is a danger that people can see their funds transferred into a higher charge scheme. If someone has been in a Nest scheme paying 50bps for default funds but then change jobs where the employer has chosen a higher charge rate of 75bps or 100bops.
“They will have accepted auto-enrolment on the basis of one set of charges but we have decided, by an Act of Parliament, to transfer them to higher charges. It does not just have a marginal effect but a massive effect.”
Lord Hutton said he does not want to “torpedo” Government reforms but that ministers needed to take “a step back” to assess whether it is the right choice.
He said: “There are serious concerns about the impact assessment to support this policy. It doesn’t hold a candle and it would be a misstep to make a decision on what we have been presented with as it is not reliable enough. This amendment invites the Government to have another look, it does not rule out pot follows member.
Cross-party peer Lord Turnbull, who also sat on the parliamentary commission on banking standards, said Government should “rethink” changes as pot follows member needed to change.
Labour DWP pensions spokeswoman Baroness Maeve Sherlock said: “If I was sitting where he was sitting and this pantheon of pensions experts were sitting opposite me telling me I was wrong then I would be pausing.”
DWP minister Lord David Freud defended the policy and fought off a Labour vote by 252 votes to 201.He said the aggregator model was backed by a powerful pensions lobby supporting master trusts and could contravene EU rules.