Is the answer to small pots in transactional dashboards?
Small pots, lost members and pensions dashboards – three interlinked industry issues that should have a joined up approach to deliver the most efficient solution – surely?
It’s great news to hear that the DWP have set up a cross-sector working group to tackle the proliferation of small pots. An issue that is sure to be crippling many automatic enrolment providers as the cost of administration remains higher than any revenue generated. Coupled with the current economic situation where fund values have taken a hit, employers are going into administration and members are stopping their contributions – the impact of small pots on the bottom line is likely to be felt more.
But what is a small pot? This remains undefined. Is it the breakeven point where the cost of administration and service provision become net zero against income generated through whichever charging structure is applied? This will be different on a scheme to scheme basis. Or is it a figure that, if untouched until state pension age will be eroded by charges. Many variables in that scenario too. So there is definitely need for clarity.
Tuesday’s research claimed an estimated 8 million deferred pension pots in Master Trusts that could rise to 27 million by 2035 without action. Not all deferred pension pots are small pots and many sit outside of Master Trusts. Other research has been carried out around lost pots – the ABI’s research valued lost pensions at £19.4 billion across 1.6 million pots in May this year.
With 11% of the population moving home each year, over 345,000 people emigrating, 239,000 people getting married (and over 204,000 getting divorced) it’s easy to see how difficult the task is to keep track of members – especially once they stop contributing. Compounded by the inertia which made and continues to make auto enrolment a success, the small pot problem is only likely to grow.
Overarching this is the pensions dashboards programme that aims to connect 52 million adults with 43,000 pension schemes – so it makes sense that pensions dashboards are the enabler to reconnect those that log on with lost pots and allow for small pot consolidation at the touch of a button.
At the end of June the House of Lords voted 281 to 241 to exclude all financial transactions from the pensions dashboard to protect savers from scams. Which indeed, is of paramount consideration, but by preventing all transactions it will also prohibit pensions dashboards from being part of the solution to small pots.
There are many challenges facing the industry right now, but these three significant areas should be looked at holistically to ensure we build and deliver a robust solution that benefits members and providers – utilising technology to make processes vigorously secure, but straightforward to use. The ultimate success of dashboards rests on encouraging consumers to use it – so let’s make them useful!