The government’s plan for a staged, opt-in approach to pensions consolidation has divided the industry, with some calling the proposals pragmatic while others say they weaken a policy that may not survive the general election.
The proposed policy for the aggregation of small pension pots will be introduced across the largest 20 providers on an opt-in basis, rather than centralised in a universal clearing house.
Giving evidence before the Work and Pensions Committee on Monday, pensions minister Steve Webb said: “We think the best way… is to start with the biggest 20 providers. They cover 90 per cent of the market … They will get the infrastructure up and running.”
In response to a question about his confidence in the technology to support the task, Webb said: “All we are doing is taking a pot with somebody’s name on and matching it to the same person somewhere else, but we have got to get it right. That’s why the incremental approach is best.”
Malcolm McLean, senior consultant at Barnett Waddingham, said he thought the minister’s approach was a pragmatic way of getting the system up and running.
“There will be sufficient coverage to establish whether the system is working effectively, flush out any latent problems… deliver substantial cost savings, and will help to combat pension fraud,” he said.
Webb outlined how an opt-in system would ensure stranded pots were transferred to the right persons, as automatic transfers on an opt-out basis would mean member’s money being moved without their active consent.
Neil Latham, principal at consultancy Punter Southall, said: “It’s taken some schemes out of the picture who would find the costs too great and don’t have the means of administration to make it work properly.”
Webb estimated it would take 18 months to implement the policy across the top 20 providers.
Latham was critical, however, of the way the legislation seems to have evolved from the proposal of a universal central clearing house to a voluntary structure with partial coverage.
“He hasn’t answered any of the systemic issues… it’s effectively an elective transfer, not the central clearing house method that everyone thought would work,” he said.
Darren Philp, director of policy and market engagement at B&CE, said: “An automatic transfer without the automatic element seems to be a half-baked idea. It demonstrates that what the government had hoped to achieve wasn’t deliverable.”
Philp said there was a need for a pensions register, adding: “An online portal aggregating all information opens up opportunities to transfer and consolidate”.
The fate of pot-follows-member still remains uncertain heading into this year’s general election, with both Latham and Philp predicting the policy is unlikely to garner Tory or Labour support in a new administration.
