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Steve Webb: Govt will fix ‘ludicrous’ high cost pension transfers

Pensions minister Steve Webb has committed to driving down the “ludicrous” cost of defined contribution pension transfers as part of radical “pot follows member” reforms.

The Department for Work and Pensions is currently working through proposals to tackle the problem of stranded pots created when people switch jobs.

Policymakers want to introduce a new auto-transfer system for people with pension pots worth less than £10,000. Under the reforms, employers will be required to “pull” the small pots of new employees across to their pension scheme periodically.

The National Association of Pension Funds and Labour, who want to use the reforms to encourage greater scale in the market by automatically transferring pots into large “aggregator” schemes, have fiercely opposed the idea.

Speaking at a Nest event in London this morning, Webb said: “The danger of the aggregator model is you create half a dozen beautifully formed but uncompetitive monsters.

“We will implement pot follows member, but what we want to avoid is pointless churn. So we are saying that periodically schemes will need to sweep up stranded pots.

“But transferring money in the world of pensions costs ludicrous amounts of money. That is a nonsense and we can fix that. There is no reason it should cost a lot of money to move from one DC pot to another DC pot.”

In an interview with Money Marketing in October, Webb revealed the DWP was working with Tisa to develop an industry-led solution to small pot transfers.

At the time, Webb said: “I recently had a briefing on what Tisa are doing with the TEX transfer system, and when they say we can do vast volumes at low cost my ears prick up.

“That is only a bit of the jigsaw but if somebody has a model out there which is going to be extended to pensions anyway, where Government could have an enabling role then that is quite an appealing model.”

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Comments

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

  1. I am not sure how the checks needed to ensure that guarantees are not lost, that costs are not increased, that entitlement to possible higher tax free cash sums are not lost etc are to be carried out by an employer with no experience of personal/stakeholder etc pensions.

  2. Quietly resigned 28th January 2014 at 2:38 pm

    Mr Webb can you also bear in mind that transfers from DC to DC include DC occupational schemes which carry heavy compliance burdens? You will need to deal with the massive compliance issues with the regulator before telling us all the position is ludicrous, we already know and are stuck with it. I very much doubt the FCA will take any notice of you in developing this idea. Is there any room left in the long grass, it must be getting very crowded in there?

  3. Shows all you need to know about politicians – apparently ALL DC schemes are the same and offer the same benefits on the same terms at the same age at the same cost but apparently ALL annuities are a complete rip off and offer EVERYONE a bad deal.

    What i dont understand is why did all the advisers in this country have to go through all the new exams when someone who has no experience in the financial industry can tell us all exactly how easy everything is and how cheap everything should be? This whole financial services thing is easy isn’t is?

  4. This shouldn’t be automatic. There are plenty of discrepancies between product charges and fund choice across different schemes, and you run the risk of sweeping someone out of a perfectly good scheme with low charges, into their own employers scheme which might be far less generous.

    Unless someone knows what they are doing, they should always be taking advice before deciding whether to move pots around. And the government certainly shouldn’t be doing it on their behalf.

  5. So the cost of regulated advice is ludicrous is it?

    Maybe we should look at cutting the ludicrous costs of employing buffoons like him?

  6. ‘They do what they want, they do what they want, they are the government, they do what they want!’

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