The IFS are telling people 10 things they already have – which annoys them
The number of deferred small private pension pots is large and growing.
The proliferation of these deferred small pension pots is burdensome for savers and pension providers.
Lower earners and women are particularly likely to accumulate small pension pots.
The status quo is not fit for purpose. We judge there is a strong case for deferred small pension pots to be consolidated by default
Individuals who have more than one pot with the same pension provider should have these pots automatically consolidated together
Only deferred pots below £1,000 should be automatically consolidated initially, but this limit should ideally be raised over time and should also, in the long run, be subject to regular and frequent increases to avoid it falling behind inflation.
Another key question for implementation is which pot the deferred small pots should, by default, be consolidated with
The choice between default consolidator and pot follows member interacts with the size limit for deferred pots. There are definitely advantages to the pot follows member approach, but the preferred policy will depend on the weight policymakers put on ensuring all individuals end up with a single pot by retirement as well as the government’s aims for the future structure of the DC market.
We judge that member choice and lifetime provider solutions should only be considered after fully implementing policies to consolidate deferred small pots automatically.
We are back where we have been so many times before. This problem of people having too many small pots has been discussed at great length and has resulted in nothing happening. Poor old Andrew Cheseldine , Steve Webb and lots of other people went barmy about this for a long time – to no effect.
What we have instead of solutions is something called “pension dashboard” which will allow ordinary people to see all their pots with money that buy a pension, on a single screen.
We hope we will have access to this dashboard next year and we hope that people will be able to move pots together a little bit easier as they know what they’ve got and where the pots are.
People may get sufficiently enamoured of having all their pots in one place that they will choose the pot they like most (my bet is it will be chosen on the basis of being treated well in many cases). They will consolidate to this and nobody will stop them.
I do not think that Government will try to legislate to make consolidation happen because Government’s know that the current situation is not causing them problems and moving money around will.
I am sorry to berate IFS but they and PPI are very good at providing us with reports on the basis of what is wrong but unable to put things right so we end up in a better place.
The report is 28 pages long, has a lot of good research and it tells us what we all knew, that we are getting no problems with all this.
We need to start educating young people about Savings NOW.
When I started school in the 1950’s there was National Savings. 6d per week bought you a Princess Ann savings stamp. Half a crown purchased a Prince Charles. When you had sufficient you converted your stamps to Certificates. When your Certificates matured you cashed them in and deposited the money in your POSB earning two and a half per cent interest. Later National Savings brought in the Investment Account which paid a higher interest rate. This was how I had Saving, and Investment, instilled in me, for National Savings were used by HMG to help re-build the country after WW2.
Bring back National Savings (and Post Offices) and start encouraging Civic Pride in our young people.
If you are Jim Parsons of Frome, then I wish you well, you have done tremendous things with the education you got and you educated me on what is right.
I am afraid I also remember James Parsons youthful experiences! I would also add the Post Office Savings Bank passbook was endorsed “Authorised Trustee Investment”. At the time I didn’t really understand what that meant.
With regard to the small pots issue, I am very concerned that there may be confusion between DC pension pots and DB (and potentially CDC) defined or targeted pensions. There is no disadvantage to the individual in having multiple small DB pension entitlements, indeed having multiple pension entitlements may reduce overall risk.
Will pension dashboard providers may clear the distinction?
If not pension scam problems may become worse (as happened with British Steel).
Sorry autocorrect strikes again!
Will pension dashboard providers make clear the distinction?
Has anyone actually asked the public affected by the small pots problem what they would like to do?
At present people seem to have two big problems…
1) Tracing the pensions in the first place (to be hopefully solved by the dashboard)
2) Navigating the labyrinthine paperwork to move even trivial pots to consolidate.
The consolidation problem could, IMHO, only be solved by the providers being more inclined to support money moving away from them, improving/automating systems etc, and by parliament improving the 2021 safeguarding legislation. Currently that almost always requires a referral to MoneyHelper, sometimes useful but more frequently seen as an annoying, unnecessary delay by a provider desperate to cling on to the cash.
The law could perhaps be improved by including an exemption for trivial pot movements and removing the blanket test on overseas investments being available in the receiving scheme.
In my experience customers mainly want to move any small pots to their current active scheme. But is that anecdotal impression the vast majority? If auto consolidation forces funds to do something counter to the members’ preference it is not going to be a popular system, even if it’s actually in their economic best interests.