The International Longevity Centre (ILC) UK has arranged a summit in June and invited Ministers from HM Treasury, the Department for Work and Pensions (DWP) and the Financial Services Authority in what it hopes will be a public forum to discuss concerns about gaps in advice for the less well off, following the the Retail Distribution Review (RDR) and other issues such as how best to handle the growing number of small pension pots.
“The end of compulsory annuitisation, the introduction of the RDR, the growth in the number of small pension pots and the introduction of auto-enrolment are all coming together at the same time,” said Baroness Greengross, chief executive of ILC-UK. “Put together, the pensions policy landscape faces fundamental change.”
ILC-UK produced a report The Retail Distribution Review and Small Pension Pots in March, raising some of these issues. Meanwhile, other experts have spoken out about the difficulties inherent in automatically transferring small pension pots and how in particular the proposals from the DWP do not take account of guarantees and the differences in the small print of different pension arrangements.
Alan Bradbury, head of annuities at the Phoenix Group, points out that pension contracts can be complex and have changed considerably over the years and that historical contracts carrying minimum guarantee rates are generally more attractive than the rates available today. Even establishing what terms a pension contract carries is difficult to determine, while automatic aggregation would be difficult to achieve as providers would not want to take on guarantees initiated elsewhere.
A DWP consultation on automatic aggregation "Meeting future workplace pension challenges: improving transfers and dealing with small pension pots", closed on 23 March 2012, but the responses suggested greater support for a system where small pots transfer to designated aggregator schemes, rather than pension pots following members from job to job.
A number of responses flagged up an alternative measure to make pensions saving simpler – a "virtual aggregator", or wrap, to draw together savers’ multiple pension pots with their state benefits which could boost member engagement and would certainly be cheaper.
Author: Ceri JonesCeri Jones has been writing about pensions for 25 years, first editing Pensions & Employee Benefits magazine and subsequently the FT's Pensions Management magazine in the mid-1980s.