Yesterday I published an edited version of Jeff Prestwich’s article complaining at the inability our system has created to transfer small pots. I have had two respondents, Jack and Alan, I am please that they provide a gender and age balance to the youthful Savova.
I was accused by a correspondent of being led by the nose by the beguiling Romi Savova and so I will respond on behalf of elderly gents who share the same opinions of Romi and me for that matter – we need to sort this small pot problem out .
I am grateful to Jack for this information. It shows just how hard it is to get “retirement savings” consolidated. Jack is a benefits consultant of a certain age, I want to hear more from him as he looks a great and writes like a great guy (I have his email)
Back in the states, President George W. Bush simplified the tax code requirements for aggregating retirement savings (pension pots) – in terms of transfers between employer-sponsored plans, or from plans to IRAs or from IRAs to plans (with the exception of Roth IRA assets to Roth employer-sponsored plans). That was part of 2001 legislation – yes, the first year of the Bush II Administration.
Almost 25 years later (I mean, nothing has changed in terms of computer and financial systems for the past 25 years, right?), America’s retirement savers still have delays and disconnects.
Here in the states, despite the streamlined code and regulatory requirements, even where all are in agreement about the transfer, it will generally require paper, physical elections/wet signatures and paper checks – which often leaves assets out of the market for one to two weeks (or longer) starting with the decision to move monies (transfer out of investments into capital preservation) until the monies are again invested per the participant’s desired asset allocation.
To reduce that time frame, Congress has now endorsed something it calls Auto Portability which is a variant and less cumbersome version of existing “Auto Rollover” processes that are applied only to small accounts in employer-sponsored plans, at the election of the plan sponsor – not the participant.
Unfortunately, because of the Roth hiccup mentioned earlier, and the lack of a receiving employer-sponsored plan also participating, the Auto Portability process still strands accounts with small amounts of assets in IRAs using a capital preservation investment default.
Better options exist. See: https://401kspecialistmag.com/how-to-make-a-401k-plan-an-asset-magnet/
Someone I know better and wish I saw more of us is my old friend Alan Higham who I am glad honours me by reading my blogs! Here is his comment.
At Annuity Direct, over 10 years ago, we had a league table of the bad ceding providers who dragged their feet with the admin processes allowing members to exercise their right to an Open Market Option to buy a pension annuity from the best option on the market rather than from their existing provider.
These problems are as old as the right to transfer to an alternative provider. It is thoroughly disgraceful that they remain unresolved.
Alan and Jack talk from different sides of the pond and of different retirement systems. Alan’s system is no longer mandatory – we don’t have to buy annuities and so the problems with the Open Market Option are less general, his Annuity Direct service has been succeeded by firms such as Retirement Line which are showing how to do the best for those wanting an annuity from their savings.
As for the American system, I have little information and would welcome more from Jack and more from Americans in general. This further from Jack is very helpful
Over here in the States, “guaranteed lifetime income”, via insurance embedded in an investment or specific annuity purchases are all the rage for all who participate in the US DC retirement industry – except for one group, the actual participants themselves.
Insurers target selling/marketing to those with substantial savings. Clearly, those individuals are BUYING income protection – choosing among a plethora of products and insurers.
Insurers favor “defaults” within DC plans for mainstream American workers who haven’t saved as much. They are being SOLD a product added to the plan for all participants – regardless of actual circumstance, need, alternatives.
Participants who have saved less and who understand the cost of the guarantees are typically less interested in giving up control over a significant portion of their accumulated savings.
A better answer for most American workers with modest savings is continued employment until they can transition from their full-time career role – a “redefined retirement” – perhaps including a combination of deferred commencement of Social Security benefits and perhaps a 2nd career or part-time employment, etc.
My own experience is that the issues surrounding the collection of information over a 40-50 year career (mine is 45 years of pensions and I have nearly 4 years to reaching retirement), is a challenge. That is what the Pension Dashboard is there to help with, whether it does or not depends on whether it gets captured by vested interests rather than functioning as a function of the pension system, free to use and open to ongoing perfection.
Actually consolidation is not critical so long as value for money is being achieved at retirement from all pensions. But this assumes that pensions are available from all pots and can be measured. In my experience, DC pots do not offer pensions and at best offer pathways to good quality drawdown and annuity services. The Pension PlayPen has Billy Burrows explaining how he thinks this could develop . This link gives you access to him speaking live at 10.30 (March 4th 2025)
But I don’t think either the Pension Dashboard or the lookalike (but not truly alike) services of drawdown and annuity, do the job. People wanted more than annuity could give and craved an investment solution back in the days that Alan Higham built Annuity Direct. People in the States do not get access to an invested pension though the TIAA annuity is a damned near thing
In this country we have had tries. With profits, especially Prudential’s Prufund looked prospecting but as yet a system of paying people a retirement income has not been built.
The reality is that we have lost touch with our pension culture and moved to DC while forgetting to take the pension with us . The ABI spent last week conversing about how they had killed the invested DB scheme and discussing how we were free of pensions.
The ABI see the pension dashboard as theirs and a means to capture the floating detritus of the past 40 years of saving.
But Jack and Alan are right, they know better options exist and that the problems we had 25 years ago remain our problems. As Alan Higham concludes
These problems are as old as the right to transfer to an alternative provider. It is thoroughly disgraceful that they remain unresolved.