NAPF questions 'rush' to introduce 'pot follows member'
UK – The National Association of Pension Funds (NAPF) has questioned the Department for Work & Pensions' (DWP) "rush" to implement its controversial consolidation policy that would see small defined contribution (DC) pots automatically merged when a member moves employer.
Darren Philp, head of policy at the organisation, said the NAPF accepted that small pots could pose problems, referencing DWP figures on the rise of small savings accounts, if some method of consolidation were not introduced.
Speaking at the House of Commons committee on the Pensions Bill – legislating for state pension reform, as well as the 'pot follows member' proposals – Philp said pursuing what pensions minister Steve Webb referred to as "operation 'big fat pot'" was the right approach and objective.
However, he told Labour shadow pensions minister Gregg McClymont that the NAPF had "strong reservations and concerns", including the possibility that savings could be transferred from a well-run scheme to a poorly run one.
"One of the things this debate has sparked is a debate about scheme quality, and it's an important debate," he said.
"We also need to think about investment when it comes to small pots as well. It raises liquidity issues around pension fund investment.
"Will DC pensions be more likely to invest in more liquid assets because there is always the risk of them being transferred at quite short notice?"
Philp's comments come after NAPF chairman Mark Hyde Harrison raised concerns that the consolidation agenda could foster short-termism in investment, while Now Pensions noted that it would need a better understanding of employee movement and pot-transfer behaviour before it could consider illiquid investments.
The NAPF's head of policy told the committee the number of reforms underway in the pensions market at present also played a role in its concerns surrounding 'pot follows member'.
"We've got auto-enrolment, that's a huge change for the industry," he said.
"We all know it's gone very well so far – but next year is going to be a crunch point. There are lots of employers coming onto their staging dates."
He said the volume of workers being enrolled placed capacity constraints on the industry.
"And, to my mind, I would say – what's the rush?" he said. "This is a big issue, it's going to be a big issue in the future. Let's just stop and think and check we've got the right approach."
Philp reiterated the selection of several large-scale aggregators as the NAPF's preferred solution for small pots, as opposed to pots following members from one employer to the next.
The DWP has previously said pots of £10,000 (€11,700) or less should be subject to automatic transfer, with a regular review of the threshold.