The National Association of Pension Funds (NAPF) has criticised the government’s move to refuse amendments to the Pensions Bill that would have allowed further discussion on how to solve a potential small defined contribution (DC) pots crisis.

The Pensions Bill, which entered its final phase of becoming law, last night, was voted on by the House of Lords, the UK Parliament’s second chamber.

The opposition Labour party had tabled amendments to the Bill that would have allowed the creation of a central aggregator.

Pot-follows-member, which is the system devised – and preferred – by the Department for Work & Pensions (DWP), would see DC pension pots move with members as they changed employers, joining their new employer’s scheme.

Opponents to the system have long lobbied for a more centralised method, where DC pots would leave occupational schemes when a employee leaves employment, and automatically move to a central aggregator scheme.

However, in last night’s House of Lords debate, the Conversative and Liberal Democrat coalition government rejected the amendments.

The NAPF said, given the broad agreement against the pot-follows-member system, it was disappointing to see the government ignore this, and not vote through the amendments.

Helen Forrest, head of policy at the lobby group, said: “Broadening the legislation would have allowed alternative proposals to be pursued whilst keeping pot follows member on the table.

“There is now a risk pension savers and the pensions industry are stuck with a flawed system of automatic transfers that is prescribed in legislation but can’t be made to work in the real world.”  

The rejecteion came after an pensions industry collective wrote to the government urging it to accept amendments made to the pot-follows-member system.

In an open letter published in the Financial Times, the group raised concerns with the government that it was moving too fast to implement its preferred option.

The collective comprises the National Association of Pension Funds (NAPF); the Trades Union Congress (TUC); the EEF, an organisation of manufacturers; charity Age UK; and Which?, a consumer protection lobby group.

The letter, while commending the government for tackling the issue of small DC pension pots, said pot-follows-member failed to safeguard savers’ interests.

“Our organisations collectively call on the government to accept opposition amendments to the Pensions Bill,” the letter said.

The letter said the government’s preferred model carried inherent risks that must be addressed, and that savers could suffer from higher charges and penalty charges with automatic transfers, or a reduction in governance.

It said it could also expose savers to transaction costs and investment risks, as well as see pension providers use more liquid asset classes, with lower returns, as they would have no guarantee of future commitments.

“Alternative proposals have been made to manage a number of these risks, but these, like pot follows member, require more detailed thinking to ensure savers’ interests are safeguarded,” the letter said. 

“Widening the scope of the legislation to allow the development of more than one potential model would be the most useful step.”