Industry members have responded to the Department for Work and Pensions’ call for evidence on small pots issue, with some arguing there is need for “further discussion”.
The DWP’s consultation looked at addressing the growth of deferred small pots in the automatic enrolment (AE) workplace pensions market.
Responding to it, Interactive Investor expressed its concern that the current consultation is too narrow and should include a pension choice model with the option for workers to choose their pension provider.
It argued that adopting an automatic consolidation model removes member choice, erodes member responsibility for their retirement savings and increases the sense that pensions are complicated.
Adopting a ‘pots follows member’ approach erodes pension flexibility, it explained.
Alice Guy, head of pensions and savings at Interactive Investor, said on the whole, auto-enrolment has been a roaring success, but the current system still has many flaws and is due for a health check.
“Many workers have an array of smaller pension pots, accumulated through many years of working for different employers,” Guy said.
“And self-employed workers are often left behind under the current system, disengaging from pension saving once they become self-employed.
“But instead of a ‘pot follows member’ approach, we think people should have the freedom to engage more positively with their pension.
“A member may be happy with their old pension scheme or be planning to consolidate pensions using a lower cost option, eg, a Sipp. There can be no assumption that a new job means a better pension, either in choice, value, or performance.”
Interactive Investor said it supports pensions choice and the ability for pension savers to be able to choose their workplace pension provider and to bring forward the pension dashboards solution.
Simple implementation
Meanwhile, Kate Smith, head of pensions at Aegon, said the rapidly expanding number of small frozen pension pots is a symptom of the success of auto-enrolment and the lack of engagement by savers with their pensions.
She said: “The reality is that many of those with small frozen pension pots are low earners who move jobs frequently and are likely to be the least engaged with their pension savings.
“This means that any solution needs to be built around the auto-enrolment principles of inertia, or ‘going with the flow’.”
Smith argued that any reliance on members making active decisions, for example by choosing their pension consolidator, is likely to fail given their level of engagement.
“Any small pot solution needs to be simple to implement, understand and communicate, with as few member choices as possible but delivering a good member outcome, setting them up for later choices,” she said.
“The consultation touches briefly on the ‘first pension pot for life’ solution. The idea here is that the first scheme the member is auto-enrolled into becomes their default ‘life consolidator’.
“We believe this option merits further discussion and may be more achievable in a shorter timescale than building an authorised consolidator regime or ‘pot follows member’ solution.”
