Standard Life says pensions minister Steve Webb will struggle to implement reforms on small pots before 2017 as the Government and insurers will have to tackle legal complications and data issues.
Last week, Webb told delegates at the Liberal Democrat party conference in Birmingham that his pension reform “in-tray” includes providing a solution to the problem of “stranded” small pension pots.
He said: “Many people have lots of different employers or different pension companies. Rather than people having lots of small stranded pots that they cannot do too much with, I want to help people to put those pension pots together to give big fat pots. We will be producing a document later in the year that will set out some of the options.”
The Department for Work and Pensions has asked the Association of British Insurers to help devise a mechanism which will allow people to take small pension pots with them when they change jobs. The industry will put its suggestions to policymakers in around three months’ time.
Standard Life head of pensions John Lawson says the project is likely to take until “at least 2017” to implement as the industry tries to navigate through data issues and legal complications.
He says: “The DWP will need to change the law in quite a few areas because essentially what you are doing is creating a new contract without consent. It will also have to override any unfair contract term conditions on the old contract because people could be moved to a scheme with higher charges or different investments.”
The Government’s definition of small pots is expected to include anything below either £2,000 or £3,000. Industry experts say ministers are likely to stop short of introducing a clearing house system that covers all pensions, similar to the system used in Australia.
Scottish Widows head of pensions market development Ian Naismith says: “I do not think it would be sensible for the Government to extend this beyond very small pots. To move a lot of money is quite a big deal for someone and I do not think it would be right to do that without getting that person’s consent.
“Data collection will also be difficult because if you are going to automatically transfer old pots into a new arrangement then you need to have some way of finding out where the old pots are.”
Aside from legal and data difficulties, the transfer ban imposed on Nest, which is due to be reviewed in 2017, will need to be lifted so small pots can be shifted into and out of the Government-backed pension scheme.
Partnership director of corporate communications Jim Boyd says: “We have a coalition Government which has already been told by number 10 that there is too much legislation and policy going through. It would be fantastic if Steve Webb could push the legislation through in this Parliament but I cannot see it happening.”