Last week has seen a flurry of policy activity around private pensions.
The Government set out its proposals for how to deal with the estimated 50 million dormant pension pots that are expected to be created by auto enrolment and the Work and Pensions committee made its recommendations on how to improve best practice in workplace pensions, including their view on the favoured Government approach of pot-follows-member.
Like the committee, we support the Government’s intention to tackle the problem of small pension pots – 23 per cent of the people we asked recently had lost track of at least one of their pension pots, never mind how difficult it can be to convert small pots into annuities.
But we’ve always been concerned that a pot-follows-member system would leave too much room for members to lose out, for example if their pot went from a scheme with low charges to one with higher ones.
The problem is not just about charges – important though they are.
What about the quality of the scheme governance? How good is the default investment fund? And, what can sometimes be forgotten as it may seem so far off, how good is the information members receive when they come to make choices about drawing their pension?
This is why we have been arguing for the adoption of minimum standards for schemes that are able to participate in any automatic transfer system, to ensure people do not lose out as their hard-earned pension pots move from one scheme to another.
In fact, the same standards should apply to existing savers, not just new ones.
Although it is good news that average charges have fallen, it is not enough to just have a good average and we must not forget those outlier or legacy schemes that still have unreasonably high charges.
Access to good schemes that meet minimum quality standards should be available to everybody, not just those who are lucky enough to work for employers who make the effort and have the bargaining power to secure the best deals.
The legal framework in the forthcoming Pensions Bill will permit the Government to specify standards for automatic transfer schemes, with any actual standards set out in subsequent regulations.
We will be looking for the Government to set out unequivocally in regulations clear standards on: low, fair and transparent charges; good governance; high-quality information; and, investment options that meet the needs of members.
Jane Vass is head of public policy at Age UK