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Labour would scrap pot follows member reforms

A Labour government would scrap pot follows member reforms if it wins at the next election, Money Marketing understands.

Under the reforms, pension pots of £10,000 or less would move with a worker when they change jobs in order to stop dormant pensions being left with old employers.

Labour favours a central aggregator model, where small pots are transferred to a central third-party scheme and then distributed. Pensions minister Steve Webb has been determined to push through the reforms in the Pensions Bill despite heavyweight opposition.

In the House of Lords report stage, former FSA chairman Lord Adair Turner, who chaired the commission which paved the way to auto-enrolment, former cabinet secretary Lord Andrew Turnbull and former pensions minister John Hutton all backed an opposition amendment, which was defea-ted, to leave the door open to both pot follows member and the aggregator model.

The main criticism of pot follows member is people could lose out if their pensions are automatically moved from a good scheme to a bad scheme.

Labour says it will review whether it needs to repeal the legislation at the next election or whether it can act within existing rules.

A Labour source says: “We will return to this issue very quickly if we get in a position to do so after the next election.

“It is very difficult to see how pot follows member will work at all as flexible workers and zero hours contracts become a much more significant element of the labour market.”

In the Lords last month, Department for Work and Pensions minister Lord David Freud defended the pot follows member 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.

Hargreaves Lansdown head of pensions research Tom McPhail says: “There is still scope to revisit this after the election. Pot follows member already ignores millions of existing pension pots so it was always a half-solution at best anyway. In another three years time, allowing for legislation, in terms of stranded pots the world will not have moved on a great deal.”

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