The urban dictionary defines “noodling” as mulling over, thinking about, contemplating, pondering and puzzling. Steve Webb has been pot noodling for some time and if his plans to instigate a system of compulsory transfers for those with less than £10k becomes law, I think we’ll be noodling plenty more.
I’m into aggregation people who can get a single value for their DC pensions become happier more confident savers and pensions takes a step closer to being liked again.
In 2001 I wrote a paper suggesting a national aggregator for stakeholder pensions. It was waived in the House and got a mention in Hansard but it’s 15 minutes are long gone. It is probably harder today (on an execution only basis) to aggregate pots as at any time over the past twenty years (a legacy of pension mis-selling). Even if you do get the go-ahead to aggregate, you are prey to a multitude of vicissitudes.
I have seldom seen a transfer “out of the market” for less than a week. On an equity to equity basis, that means a lot of risk. Then there’s the execution cost which is supposed to be free but exposes you to the lottery of the single swinging price not to mention the paper mountain thrown up. Ask insurers about the costs of an execution only transfer and then double it to get an adviser involved.
The insurance companies are not geared up to the minimal amount of aggregation going on today, their priorities in systems development have been in other areas, transfers is a toxic word that reminds them of the great mis-selling disaster about which they are still sore.
To get insurers and mastertrusts to voluntarily upgrade systems and processes to make for a free flowing pot-follows member merry-go-round will cost a lot in systems time. This time is currently over-stretched dealing with auto-enrolment and the “on boarding” of 1.2m new employer schemes. Insurers are adapting to the post RDR world and struggling with new distribution channels. The news of pot-follows- member arrives on their doormat like an investigation from HMRC.
It does not have to be like this. We do not have to transfer pots to get the benefits of aggregation. Virtual aggregation where the pot is linked to a central register and viewed with other pots linked to a person’s Nino is a much more elegant idea. While it relies on a central register, which government’s are pants at operating, it can be linked to existing registers, which the DWP are at last learning how to use. Issues around security won’t go away but we’ve got to put some trust in a technology dividend to make them easier over time.
Steve Webb has three big ideas
- Pot follows member
- Defined Ambition
- Minimum standards for Qualifying Workplace Pension Schemes.
I would argue that two out of three ain’t bad and that if he gives up on one it should be (1)!
If Steve Webb chooses to press ahead, he should listen not to me but to the people who have to implement the service standards that a pot follows member system would have to adopt. The business case for the spend to make this happen properly is hard to make, the prize too small, the cost too high.
Think technology Steve, small pots will become a lot smaller through aggregation and operation big fat pot may end up being renamed “Webb’s folly”.
- Government outlines new plan for pensions pots (standard.co.uk)
- Working for the clampdown? (henrytapper.com)
- Automatic transfers for small pension pots less than £10,000 announced (thisismoney.co.uk)
- Pensions: ‘pot follows member’ system to be introduced (guardian.co.uk)
- Everybody need standards (henrytapper.com)
- When pensions de-mutualise (henrytapper.com)
- So what’s a good DC pension – Mr Webb? (henrytapper.com)
- Improving governance and best practice – Work and Pensions Committee (henrytapper.com)
- “Stick or twist” for the lifecos. (henrytapper.com)