Pots of less the £1000 don’t do anyone any good. People lose them, people do no good with them, providers lose a lot of money unless efficient at dealing with small pots.
Even the most efficient pensions have to cope with the handicap of levies. The levies paid by master trusts and single employer DC schemes are going to make small pots for years to come.
Yes, master trusts and single employer DC schemes pay levies, primarily the Fraud Compensation Fund levy Master trusts are subject to the same levy regime as other occupational pension schemes, but the levy rate for master trusts is often lower than that for other occupational schemes.
The single employer occupational DB pension pays even more in the general levy
The message is clear, get your pot numbers down and the Government has come up with a new idea, a scheme set up to take pots of less than £1000 which haven’t been consolidated by pension drawdown excited savers.
The administration costs devoted to managing smaller pots is estimated an extra £225m in unnecessary expense. Let’s hope that schemes agreeing to consolidate will not have to pay huge amounts in fraud compensation levies.
So long as consolidators are allowed to make money, the net result will be an end for a useless distraction for master trusts and large single employer sponsored DC.
Info from Corporate Adviser
The consolidation model will be known as the small pots data platform. It is estimated that there are now 13m small pots of this size, with the number increasing by around one million a year.
The Government intends to get this consolidation fund up and running by 2030 allowing small schemes to concentrate on becoming big or part of big schemes through consolidation.
That will make it easier with the job of paying pensions rather than housing money that does no good for anyone, rich or poor.
The PLSA have been given the job of helping this happen (which has been termed to a tight schedule). If we are to consider anything to do with consolidation – especially small pots – we normally think in terms of decades rather than years. Bravo the PLSA standing up to do this job. Let’s hope that schemes who put their hands up to be consolidators have what it takes to manage these pots efficiently.
No doubt is that such providers will need to be rewarded or there will be dumping on Nest who has quite enough debt on its books , without losing more money on non-commercial pots.
If we add costs of consolidation to the substantial costs of the Pension Dashboard, we as tax-payers may be having to pay a substantial amount to sort out problems created by an out of control proliferation of AE contributors.
This is the kind of measure that we expect to see as precursors of more substantive measures in the Pensions Bill, it is good to see the Government taking it on!
Notice to sane readers; there are rather more things to do than worry about the destination of small pots after 2030 but we have to be onside to suck up to the DWP and other civil servants
