Pot-follows-member approach to foster short-termism – NAPF
UK – The UK government's proposed approach for the consolidation of pension pots will "encourage" short-termism in defined contribution (DC) schemes' investment approaches, the chairman of the National Association of Pension Funds (NAPF) has insisted.
Criticising the proposed pot-follows-member approach – pension minister Steve Webb's solution to fears that DC savers will be left with several dormant pension pots as they move between employers over the course of their working life – Mark Hyde Harrison said the proposals risked damaging pension provision in the UK.
Speaking at an event on governance organised by union umbrella group TUC, he said pot follows member was a policy that would lead to short-termism.
"If you are running a pension scheme and you believe your members are going to be simply transferring their pots every four to five years when they change jobs, you need to develop investment strategies that can liquidate every four to five years," he said.
He said the approach would "stifle" innovations in investment and lead to "much worse outcomes for people".
"Even if you have aligned governance, even if you have scale, pot follows member damages pension provision in the UK," he said.
Hyde Harrison's comments came after shadow pensions minister Gregg McClymont claimed there was a lack of support from the industry for the initiative.
"Most people in the pensions world take a different view on small pots to the government," he said.
"Against the advice of more or less every informed pensions analyst and commentator, the government seems hell-bent on proceeding with small pots."
However, the opposition Labour MP expressed hope the policy might have an inadvertent positive effect.
"Perhaps the silver lining is that, by going down the wrong route, the government might get to the right place on quality of auto-enrolment schemes because pot follows member is impossible unless quality criteria are imposed," he said.
The Pensions Regulator's recent consultation on DC governance is expected to influence minimum quality standards for schemes that comply with pot follows member.
The NAPF and others within the industry, including social partners such as the TUC, have spoken out against the measures, with many critics supporting the notion of one or a few select aggregator funds to receive all dormant pots.
However, Webb dismissed criticism, saying he was astonished by the hornet's nest he stirred up when proposing the policy.