PLSA AC 2020: DC small pot solution ‘must not recreate the retail market’

Solutions to the DC small pots challenge must not result in the institutional pensions market mirroring the retail market, The People’s Pension head of pensions policy, Tim Gosling, has warned.

Speaking at the PLSA Annual Conference 2020, Gosling highlighted how tackling the high number of small DC pots – of which there are currently eight million, with the PPI expecting to rise to 27 million by 2035 – may require a number of different solutions.

Also speaking at the presentation, Now Pensions director of policy, Adrian Boulding, acknowledged that it is difficult to know which solutions to use and warned that “there is a risk of the different principles crashing up against each other”.

“Which out of the options will win through may be a mix,” he said. “I do think there will be a degree of choice in the solution and that’s because we have a Conservative administration in power.

“It is natural for a Conservative government to want to see individual personal freedom on choice. So I suspect a little bit more choice in how individuals dispose of their pension plans during their working lifetime than perhaps we would have seen in the original automatic enrolment where the employer chose absolutely everything for you.”

While Gosling agreed that while any new system may have an element of choice within it, “we don’t necessarily want to create, or recreate, the non-workplace pensions market in the workplace pensions market”, he warned.

“We’ve made an awful lot of advances over the past seven years in the quality of workplace pension provision. There are many elements of that I would be looking to keep. Part of that would be strong trustee governance. Also, the power of paternalistic, engaged employers in picking the right pension scheme for their staff. There have been a lot of spillover benefits of that into the market, for instance when with the charge cap in place the cost of provisions has fallen well below the level set by the charge cap.

“So if we move to something that is more based on individual choice, we need to make sure that we have a good quality pension products coming to market and being available to people.”

In September, the Department for Work and Pensions (DWP) launched a cross-sector working group with the industry to assess and make recommendations on ways to address the number of deferred, small pension pots, with its initial assessment, recommendations and an indicative ‘roadmap’ of actions due later this autumn.

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