Two-thirds of employers uneasy over pot-follows-member

To avoid a proliferation of stranded pension pots as people change jobs after auto-enrolment beds in, the government plans to introduce pot-follows-member pensions consolidation for funds below £10,000.

Uncertainty is not productive and unsettles both employers and members

The move has come in for criticism from pensions industry groups for its potential cost and complexity, while transfer companies have explained how it could be managed in an efficient way.

The survey of 226 employers released this week by the Confederation of British Industry, titled ‘A View from the Top’, said while the goal of the reform had been broadly welcomed, there was concern about how it will work in practice and “what the administrative burden will entail for both employers and scheme providers”. 

Richard Wilson, DC pensions and investment policy lead at the National Association of Pension Funds, said although it was necessary to deal with marooned pension pots, the survey highlighted the strong level of concern among employers about the government’s “badly designed” proposals. 

“If a pot is moved from a well-run, low-charging scheme to a poorly run, high-charging one then the pension saver will lose out,” Wilson said. “In a worst-case scenario, a member could lose up to 25 per cent of their pot from being transferred into poor schemes.” 

The NAPF is instead recommending that small dormant pots be transferred into large, well-governed, low-cost schemes. “These larger schemes could be selected by the Pensions Regulator to ensure they meet high standards,” Wilson added. 

But Daniel Smith, business development director, DC & workplace savings at Fidelity, said pot-follows-member is the way forward and the industry should get behind delivering the solution “rather than arguing about alternatives”. 

“Uncertainty is not productive and unsettles both employers and members,” he said. “There will be some extra administrative burden and costs, but we should focus on what the end consumer wants, which is simplicity and consolidation of small pots.” 

Smith added that the success of DC beyond auto-enrolment will be dependent on delivering high-quality, easy-to-understand benefits for members. 

The Department for Work and Pensions has said that although the details of how pot-follows-member will work have yet to be determined, the framework set out in the pensions bill will allow it to work with stakeholders to develop an effective system.

This is intended to enable employers and regulatory bodies to focus on the standards of the schemes members are transferred into.  “We believe individuals should not be transferred into poor quality schemes, so we have taken powers in the pensions bill to set minimum quality standards for qualifying schemes and limit or prohibit charges," said a DWP spokesperson.