PLSA AC 22: Member exchange pilots present ‘real opportunity’ in addressing small pots issue

Member exchange pilots present a “real opportunity” in not only the potential for consolidating small pots, but also the learnings they will provide to inform policy, Department for Work and Pensions (DWP) head of auto-enrolment policy, Rob O’Carroll has said.

Speaking at the PLSA Annual Conference 2022, O’Carroll stated that it was “imperative” that the issue of the increasing numbers of small, deferred pension pots was addressed.

“The industry is facing a cost of around a third of a billion pounds every year from about 2035,” he said.

“That presents a cost for providers, and for deferred members as I’ve outlined, but also there is a cross-subsidy going on here, because for those members with larger pots, they are effectively cross-subsidising those with small pots too.”

To help fix the issue, O’Carroll said that he believed what was needed was an automated transfer and consolidation system.

He stressed that it was important that such a system was low cost, and it was “pence not pounds” in terms of ceding and receiving schemes organising the transfers, due to the scale of the number of small pots.

Additionally, O’Carroll revealed that the DWP was carrying out research with members and employers to understand their preferences and responses to some of the consolidation solutions.

“I’m not infrequently asked: ‘What is this automated solution and when are you going to legislate DWP, and can we just have that please?’,” he continued.

“The main things for me is, there may be not be one solution, there may be a combination. When we think about legislation, if you’ve enjoyed conversations with the Delegated Powers Committee, those sort of people that concern themselves with secondary legislation and the powers the government is taking you’ll know that legislation and policy, the foundation of it is having a really clear specification of what you want to do.

“In this context, understanding the net value for money benefits for consumers. We think the cost/benefit analysis is really important, as well as the policy design, for us to spend the time now investing as government and industry towards solutions come the opportunity for legislation.”

Also speaking on the panel, Pensions Policy Institute deputy director, Sarah Luheshi, revealed that the institute was going to be publishing an update on the estimated value and number of lost pots in two weeks’ time.

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