On December 17th, the DWP reported on the findings of its small pots working group, the report was accompanied by press releases from the various participants in a competition to find the tallest dwarf.
I am sorry to write ill of our great and good, but as I approach my 60th birthday, I don’t see much point in holding back. It is time that those representing the different factions within pensions stopped throwing rocks at each other and concentrated on what really matters – improving saver’s retirement outcomes.
To do this, the two principal trade bodies who represent the commercial interests of pension providers, the ABI and the PLSA, stopped squabbling and worked together. In particular, they need to collaborate in the interests of savers who have multiple pension pots resulting from moving from one workplace pension to another resulting from auto-enrolment.
Pension people have known for many years that a problem was brewing, the DWP estimate that by 2050 there will be 50m “orphaned” pots, the PPI tell us that already there are some £20bn in unclaimed pension pots and to date and in this relentless proliferation of pots there are few winners.
Pension Providers define small pots as those with less than £1000 in them and “micro-pots” as pots with less than £250 in them. Each pot has a cost of maintenance and a “cost of claim” – when the money is paid out. In addition, pots carry a fixed charge to providers – being a general levy on providers based on the number of members or policyholders under their control. Faced with increasing levies and minimal revenues from assets managed in the pot, the commercial providers have introduced fixed charges on pots which are small enough to keep big pots competitive but large enough to restrict or even prevent growth on the smallest pots.
The Government are about to cap these fixed charges to ensure that small pots do not find they are being eroded by a composite charge greater than the 0.75% charge cap, which simply adds more complexity to an already complex system.
The economics of running an employer scheme can be very complex. Tesco, when it decided not to run its own workplace pension, ended up participating in three schemes. Two were with Legal and General, one for high earning active members, the other for low earners (the driver being the net pay anomaly). The third scheme was for deferred members with very small pots, these members went to Smart pensions. The logic was that Smart, being smart, could run small pots cost effectively while L&G, being commercial, would only give Tesco the terms they wanted if the small pots went elsewhere. Once more complexity arose because of a systemic failure within pensions to clean up its act.
Last summer, recognising that the pensions industry was getting nowhere, the DWP set up a small- pots working group which reported back to Government in super quick time that there were things that could be done to sort the problem.
- Duplicate pots could be consolidated by trusts managing two periods of service.
- Members could be exchanged between commercial master trusts.
- A system of “pot follows member” could be introduced.
The working group ruled out a proposal that would have meant payroll administering contributions to multiple schemes so members could decide which pot they wanted the employer to contribute to. This was partly out of effective lobbying from the payroll industry and especially the CIPP.
The original working group has now been superseded by the “Small Pots Co-ordination Group” under the Chairmanship of Andrew Cheseldine, a good choice as he is experienced, competent and gets on well with everyone.
He will need all his skills as reports of the initial meeting suggest that the ABI and PLSA, representing insurers and trustees respectively are not co-ordinating but bitching. The PLSA say that this is their baby and the ABI aren’t welcome, the ABI point out that many of the master trusts are funded by insurers and that they want group personal pensions included in the discussions.
Meanwhile, progress towards establishing common data standards to identify where the various solutions agreed by the previous group, are bogged down in wider issues to do with the pensions dashboard.
What this means is that we are unlikely to hear more on this subject till June and that the problems for members of workplace pensions are unlikely to be addressed this year. With the dashboard already two years behind its scheduled opening, its proposed timeline to start offering a single look at all data by 2023 also seems to be slipping.
Meanwhile, consumerists – including myself – have been lobbying the DWP to do for pensions what HMT did for banking and bring in the Competition and Markets Authority to ensure we get “open pensions” as we got “open banking”. The frustrations with the pace of change within Westminster may make this happen, sooner than the PLSA and ABI expect.
For those offended by the title of this blog – please don’t be. Dwarfs are great but the one thing they aren’t is tall. Trade bodies are also great, so long as they don’t vie to be tallest on moral supremacy. We have the OFT and CMA to ensure the consumer interests. The ABI and PLSA should welcome the intervention of a supra-pensions initiative – “open pensions”.