Imperative for any solution … is for government to prioritise delivery of commercial and non-commercial pensions dashboards to spur pension scheme members to consolidate their pots.
This is a case for putting the cart before the horse and obstructing a more urgent solution to a pressing problem. It is not the ABI’s problem , it is a problem for occupational pension schemes with large numbers of deferred pots and it is best addressed through through primary legislation – whatever 2021 brings us the second pensions bill of this Government.
Not the ABI’s problem?
Insurance companies chose to cherry pick the employers to whom they provided auto-enrolment. Their superior distribution through corporate IFAs and Employee Benefit Consultants enabled them to bid for the business they wanted and pull the drawbridge up on unprofitable schemes, namely schemes with low paid staff, minimum contribution rates and high staff turnover.
So the big insurers have not got a small pot problem, that’s with the commercial master trusts who were left to compete for business with lower margins and the financial bindweed of small pot maintenance and claims. The big three – People’s, NOW and Nest account for the bulk of the problem but there are plenty of smaller schemes with pots whose revenues barely cover the cost of the levies they attract.
So what is the ABI’s game?
The Pensions Minister and the Chair of the Work and Pensions Select Committee are both exploring how small pots can be consolidated into bigger pots through the rule of law. Stephen Timms, speaking yesterday at a DG conference confirmed that his call for evidence had attracted a number of responses and that he would be working in parallel with the DWP’s small pot consolidation group
These Government initiatives are looking at over-ready solutions which can be implemented in a timely way.
By comparison, the earliest point at which a dashboard could be available would be 2023 and , speaking at the same conference, Chris Curry (the head of the Pension Dashboard Programme) confirmed that there is no certainty that the Dashboard Available Point will happen even by then.
The ABI’s game appears to be a lobby for a faraway solution about which we know nothing. It is a stalling tactic that will starve non-insured master trust of the oxygen needed to develop and give commercial advantage to the insured master trusts and GPPs who have little to gain from legislated solutions.
If this was all that the ABI lobbying position did, I could let it pass. Trade bodies are there to seek advantage for their membership and this position certainly does that.
But in the meantime, the interests of ordinary savers are not served by further delays in pot consolidation. Many members of the non-insured master trusts are seeing their small pots strangled by complex charging structures which restrict growth or actually eat into the nominal value of their pots.
And when it comes to claiming benefits, these small pots are typically considered no more than windfall payments. The FCA’s recent publication of data on DC pension claims shows just how few small pots ever get drawn down or converted to a pension annuity
The DWP estimate 50 million abandoned pots by 2050 (if nothing is done). Mostly these will be small pots that get left behind after short stays in a job. Many people have no idea that they have pots and these people are not necessarily going to be using pension dashboards either to find or consolidate what they do not know they’ve got.
So the ABI’s emphasis on sorting the small pots problem through the dashboard is really about consolidating the pots of those who can, not those who can’t. As ever, those who can tend to be the affluent and engaged while those who can’t are ill-served.
Dashboards aren’t the small pot fix
The ABI are not ignoring other solutions but I don’t sense much enthusiasm for them
The ABI believes a range of measures are needed to fully address the problem of small pots – while default options such as automatic transfers or a default consolidator may be needed there should also be a strong element of personal choice by customers.
Personal choice is the Conservative mantra and this statement is clearly directed at a Conservative Government, but the savings policy that has worked has been auto-enrolment and the consolidation policy that will work will be some form of auto-consolidation – almost certainly with an opt-out for those who choose to keep a plethora of pots.
One of the great successes of auto-enrolment was that it was implemented in relatively quick order and with conviction. By contrast, we are now 15 years since Stephen Timms attempted to introduce a Combined Pension Forecast and at least 3 years away from getting one (it was comforting to hear from Chris Curry that the state pension will be on the mark one dashboard).
We can implement collective solutions rather quicker than individual ones it would seem (the pension freedoms being the obvious exception).
So please let’s focus on getting a collective solution implemented and not get distracted by what a pension dashboard can or cannot do. One problem and one solution at a time!