“Time to get off the pot!” that was the call to action by Andy Cheseldine at this morning’s Pension PlayPen coffee morning.
There is a cost of delaying small pot consolidation but there are no numbers to tell us what it is. With the Pension Regulator’s General Levy increasing to £2 per member per annum, carrying a few hundred thousand pots with revenue generation of less than £2 per annum is an incentive to do something now.
Andy Cheseldine reckons there will be 11m micro pots pots by the end of the year (pots smaller than £100. Many of their owners are no longer in the country and have no pot to exchange to, some will have pots elsewhere which they will mop up, but the majority of micro pot holders have pots elsewhere. It is hard to see – with a 0.75% charge cap, how any of these pots can generate revenues close to £2, most won’t reach half of that.
If you think this is a provider problem, remember that it impacts all members. Unprofitable pots create a claim against profitable pots, the impact on larger pots is on charges and service – higher charges and lower services. Small pots reduce Value for Members and in Nest’s case , extend the duration of its tax-payer subsidised loan. There are no winners from small pots.
So what’s slowing things down? We had expected by now a pilot of the member exchange idea – where the likes of Smart, NOW, People’s and Nest would push out members with small pots and they’d be pulled in by a master trust with a matching record.
Matching seems to be a bit of a problem where names like Mohammed can be spelled many ways and where many people spell their names with inflections (cedillas and accents etc. ) But this seems to be an issue that the Dashboard’s finding service has dealt with. If the dashboard can find you, can’t your neighbouring master trust can? There will be outliers but we have to live with exceptions.
Then there are the provider’s individual idiosyncrasies
Andy Cheseldine did a pretty good job of putting a lid on his frustration but you could hear his scepticism that
Nest say they can take bulk transfers in but not bulk transfers out
Nest cannot report to employers on pot size as not all the pot was built up with that employer.
People’s cannot transfer out members because of detrimental normal retirement dates elsewhere.
Frankly, the strict application of every piece of guidance given by TPR, the COBS rulebook and GDPR could create a valid argument against any form of non-consensual transfer. As we saw in recent issues flagged by Pension Bee, even consensual transfers are caught by peripheral issues such as “incentivisation”. Give the legal profession half a chance and we would see all transfers “advised” with no-one to advise on them.
So getting off the pot with member exchange is going to require the kind of robust common-sense approach that Andy Cheseldine specialises in. He just needs a bit more clout than anyone’s given him to date. Whoever is the Pensions Minister after September 5th should have small pots high on the agenda. The Minister tells me he currently has 21 projects left open, this should not be at the bottom of the list.
Beyond member exchange
It’s clear that Andy Cheseldine sees the endgame as compulsion on occupational schemes and especially master trusts to consolidate pension pots one way or another. Member Exchange is one , and the easiest way. There are two others recommended. Both look a lot harder.
- The Pot Follows Member model means that when an employee moves jobs, their deferred pension pot in their former employer’s scheme automatically moves with them to the new employer’s scheme, with the opportunity to opt out. Here the liability seems to fall squarely on the receiving scheme for the outcome as the ceding scheme has no choice in the destination of the money – that being determined by the next employer’s choice of workplace pension. Information on the deferred member’s current whereabouts looks the biggest obstacle. Unless occupational scheme data bases are able to publish new joiners, how will the ceding scheme know where to send money. This looks to have bigger obstacles than member exchange and would need considerable infrastructure development. A cost/benefit analysis comparing pot follows member to the following alternative looks necessary.
- Under the multiple Default Consolidators model, certain pots will automatically be transferred to a small pot consolidator, with savers being given an opportunity to opt out. If a person has multiple deferred small pots, these could be linked by the consolidator. This model comes with a variety of design choices. I asked what these might be – Cheseldine considered a push and pull version which makes it an extension of member exchange with determination and liability for the destination and outcome resting with either the receiving or ceding scheme. I can see arguments for both but this is the kind of legal barrier to action which needs immediate and decisive action (or this won’t happen)
My takeaways from the coffee morning suggest that small pots is the kind of open-goal the pension industry loves to miss. It has spent several years lining up but has yet to take a shot. Meanwhile the clock is ticking and the cost of delay mounting up.
The Minister rightly saw the resolution of the problem as within the grasp of the occupational industry but it has found ways to prevaricate , to the obvious frustration of those at the Coffee morning who were commenting and questioning.
Small pots can’t be left to mount up as members of the ABI and the PLSA confound each other. What’s needed is an immediate pilot of member exchange to show it can be done and then a general invitation to Master Trust Assurance Framework members, to participate.
Meanwhile – work can be done on the automatic solutions of pot follows member and multiple consolidators.
Getting a pilot announced and scheduled by the end of the year looks a reasonable target, getting it done in early 2023 would be a great precursor to the pensions dashboard.