UK - Increasing numbers of temporary migrant workers will pose a "significant challenge" to personal accounts in terms of communication and administration costs, the Personal Accounts Delivery Authority (PADA) has claimed.
At the first evidence session for the Pensions Bill Committee in Parliament, Tim Jones, chief executive of PADA, said the prospective ban on transfers in and out of the personal accounts system could produce a large number of dormant accounts.
He argued it was "entirely plausible" that from 2012 "millions" of workers from across Europe could "come to the UK, work, qualify, have a national insurance number and a personal account, then go back home and have no further involvement with personal accounts until they decumulate".
Jones claimed this presents a "significant challenge" to PADA partly because of the legal requirement to communicate with all members on an annual basis, and also because the large number of dormant accounts would increase administration costs across the entire scheme.
As a result, Jones suggested changing the transfer restrictions on personal accounts could be a possible solution to the "practical difficulty of making these communications to millions of people", which at the moment is conducted by "snail mail or paper".
He said: "I am very glad that the ban on transfers out has been brought up as a subject for discussion in the 2017 review because, from an operational perspective, I could make a case for allowing us to be able to transfer out these very small pots. This would also reduce the administrative burden that will fall across the cost of the scheme."
At a later evidence session, Nigel Stanley, head of campaigns and communications at the Trades Union Congress, suggested the transfer of small dormant funds could be one of a number of specific exemptions, which could allow unvested pension rights from DB schemes where the member was an employee for less than two years to be transferred into the fund.
He said: "That is obviously a sensible thing to do. The migrant worker argument and other arguments are similar exemptions to the transfer-out side. The idea that there can never be a transfer out under any circumstances will give rise to problems."
Additional evidence presented to the Committee included confirmation from Paul Myners, chairman of PADA, that the body would be publishing a consultation on the charging structure of personal accounts within the next two weeks.
He said the document will "set out a range of options" on which it will seek views, as there have been concerns within the industry that the initial target of 0.3% annual management charge in unachievable.
PADA also plans to hold a formal consultation on the investment strategy of the scheme that will outline ideas for the both the default fund and additional investment choice, although Jones revealed current discussions suggest the number of funds available will range between 6-15, while the inclusion of social, ethical and religious funds is also being considered.
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