NAPF: allow whole of market to become small pot aggregators

The government’s consultation on the issue closed on Friday, with the industry divided over the best way to deal with the £20bn problem.

Employers prefer the idea all pots of under a certain size being shifted to a single central fund when they become inactive.

Insurers object to this on the grounds whoever controls the aggregator fund will have a competitive advantage in the defined contribution market. They prefer people’s small pots to transfer with them to their new employer's auto-enrolment scheme.

Critics of this ‘pot-follows-member’ method are concerned it will not easily cater for people who leave the workforce altogether, or who move jobs and opt out of joining their new employers’ schemes.

The NAPF proposal is any provider be entitled to set up an aggregator fund, subject to certain minimum regulatory standards around cost, governance and investment strategy.

It has yet to outline exactly what these standards ought to be, but will argue they should include eligible schemes are “large-scale, multi-employer and trust-based”.

Meanwhile the NAPF’s recommendations on fees for a suitable aggregator scheme will be outlined in its code of conduct on charges, due later this year.

By the association’s definition a number of mastertrusts already active in the UK market would be eligible, subject to also meeting the as yet undisclosed criteria.

Catherine Cunningham, NAPF policy adviser and response author, said: “We recognise small pots are a problem that is likely to get worse with auto-enrolment.

“The pot-follows-member proposal has a number of problems with it but we think there needs to be more than one aggregator scheme, to ensure competition.”

In December, PW revealed analysis of 600,000 members of workplace schemes by pensions data analysts DCisions, showing around 350,000 pots of an average size of £5,276 have been inactive since 2008.

This means across all the UK’s 3.5m workplace DC savers, nearly £20bn is sitting in pots too small to provide adequate retirement incomes.

The data also revealed around 20% of savers with small dormant pots in 2008 either took a short-service refund or transferred the money elsewhere.

––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––

Following the consultation’s close, the government launched another bid to get industry views on a raft of changes to its auto-enrolment policies.

Among new proposals are plans to move back the staging date for all employers using defined benefit schemes as their auto-enrolment vehicles to 2017.

Small employers on larger companies’ pay-as-you-earn schemes will also have more onerous requirements to calculate their workers’ hours, which JLT head of employee benefits Martin Freeman called “unworkable”.