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Govt to press ahead with radical small pot pension reforms

Steve Webb 480 LibDems DWP

Pensions minister Steve Webb will today signal a radical savings overhaul by confirming the Government’s support for a ‘pot follows member’ automatic transfer system.

The Department for Work and Pensions will publish a consultation document outlining plans to introduce a new system which will mean new automatic enrolment pension pots will eventually move with an employee when they change jobs.

The Government will consult on four different pension pot limits for the auto-transfers system – £2,000, £5,000, £10,000 and £20,000.

Speaking to Money Marketing, Webb (pictured) says: “We felt that pot follows member offered the best prospect of getting people to engage because their pot ends up in one place.

“We have proposed four different limits – £2,000, £5,000, £10,000 and £20,000 – to show the trade-offs. So at £2,000 you do not get much consolidation but there is no real consumer detriment problem.

“At £20,000, it is serious money and you need to decide where advice will fit in. We want to hone the debate to a preferred option and then work from there.”

The Government is looking to reduce potential consumer detriment by limiting the reforms to auto-enrolled pension pots.

“Provisionally the reforms will cover auto-enrolled pots only. The pot size limit then follows from that conversation.

“If you think consumer detriment is a really big problem you might have a low limit, but if you think most auto-enrolment schemes are much of a muchness and consolidation is the most important thing then you might want a higher limit.”

The DWP will also look to improve the existing transfer system before structural changes are introduced.

Webb says: “There is a question about whether we can do stuff now, so there is a more automatic prompt or prod for people to take their pension with them when they change jobs.

“You can think of this as being a phased approach, building on the existing regime first and then looking to legislate and introduce auto-transfers in two or three years.”

Norwest Consultants principal Harry Katz says: “The Government seems to be taking a blanket approach here which I am not comfortable with. This will also inevitably cost money because someone will need to administer these automatic transfers.”


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There are 12 comments at the moment, we would love to hear your opinion too.

  1. Adrian Boulding 17th July 2012 at 8:38 am

    This is very timely as many of the one million people to be auto-enrolled by next March will quickly move jobs creating small pension pots. As pot follows member becomes the norm, pot sizes in workplace pensions will build up and so employees will take a greater interest in the pension scheme their employer provides. Having more engaged customers will be good for all branches of the pensions industry.

  2. What is the price to advise someone on a £20,000.00 transfer?

  3. Agree with AB that it can only benefit the customer. The added benefit is that it will help to keep costs down. Insurance companies really don’t like being left with thousands of small pots with no new premiums. A win on both sides but why is this only just being addressed?

  4. However, is this not the death nail for AMDs as they are only profitable by hanging onto those pots that gather dust?

    what this space for a reprice!

  5. We already have a “pot follows member” contract its called a Stakeholder/Personal Pension

  6. @John
    It’s not worth the candle to even look at a £20k transfer. Walk away.
    Every transfer amounts to a PII IED in one’s locker.
    Let some other poor sap take the missell risk and PII ramp-up, if they’re desperate enough for the business.

  7. Agree with AB – this is a pragmatic & timely response but it’s vital that the legacy issue is progressed promptly – that’s where the consumer detriment really occurs.On the question of advice surely the issue is not what it currently costs but can ways be found of delivering advice on a more economic basis – without quality being sacrificed. An overhaul of the transfer regulatory framework particularly for small transfers would be a good starting point.

  8. you couldn’t make it up.

    the previous government decided to put in place a regime which creates small uneconomic pots, subsidises a quango to run it and then gets in a tiz over the same said small pots. what a complete nonsense

  9. Its encouraging to see some action being taken to this important issue, but we think there is a lack of understanding of some of the implications of the pot follows member approach. It will only keep costs down for those Providers who want to get rid of small pots and keep the good ones. Adding a CAP to the auto-transfer also just means a smaller number of medium sized pots rather than a higher number of small pots – so it doesn’t solve the engagement issue, just improves it slightly. In addition, the average man on the street changes jobs more than 11 times and in transient industries this can be much more frequent than that, so paying for the cost of transferring the pot each time they change employers will add massive administration costs to the system – which will put charges up for these individuals. If we want to encourage engagement and keep charges down for the average consumer (not just the high earners) then there are much better options than pot follows member.

  10. Another layer of unnecessary complication for the public who aren’t interested anyway. What was wrong with Satkeholder Pensions ? Lmited choice, low cost. The Government should have just insisted that they pay in to a pension pot and can prove it. I’m glad they did not have the nerve to call it ‘pension simplification’.

  11. If they made SIPPS compulsory and compelled employers to match individual contributions up to, say, 5% to start with, the pots wouldn’t have to move. they would always be ‘mine’. Investment advice would be tricky, but not as tricky as faffing about with piffling transfers. The Government should have buried NEST along with stakeholder.
    Nothing they say convinces me that they listen to anyone but the numbties in HM Treasury, whose cluelessness on these matters is well proven.

  12. Surely this will only work if all auto-enrolment schemes are required to have the same level of charges. I doubt anyone would be too chuffed if they were required to transfer their pot, however small, to a scheme that charged them more. What if they worked out years later that they would have paid much less in charges if they’d simply left their pension pot where it was in the first place? They’d need someone to blame then I guess…

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