UK – Attempts to introduce greater pension portability in the UK led to a reaction akin to stirring up a hornet's nest, Steve Webb has said.
In a two-hour hearing with the work and pensions select committee, the minister seemingly also ruled out creating a single pension regulator by merging the Pensions Regulator (TPR) with the forthcoming Financial Conduct Authority, suggested in the wake of a National Audit Office report last year.
He said that such a step would come at a time of "massive turmoil" caused by auto-enrolment and noted that it would also risk losing the expertise TPR had built up since its inception.
The hearing, part of the parliamentary committee's investigation into best practice within workplace pensions, heard that in Webb's ideal world pension pots would follow members to each new employer, but that this was a "bombshell" declaration within an industry that had significant legacy business.
"This is the one issue where I most encounter the vested interests of the pensions industry," he said. "I'm a bit naïve occasionally, but on this occasion I was astonished by the hornet's nest we managed to stir up."
The 'pot follows member' approach was last year chosen as the Department for Work & Pensions' (DWP) preferred method for dealing with small pension pots, as opposed to the use of one or several aggregator funds.
The Liberal Democrat minister accepted that he might be in the minority in favouring the approach after committee chair Dame Anne Begg highlighted that many industry members had given evidence in opposition of the policy.
"They are terrified that all their profits are about to disappear because this idiot," Webb said, referring to himself, "is going to force people when they change job to move their pension pot."
Asked for his views on scale within the defined contribution (DC) market, he said it was not a "panacea" but certainly had advantages.
He added that the DWP wanted to guarantee that members would be auto-enrolled into "good" schemes.
"If we therefore end up defining what 'good' looks like," he said, "some of the things we do will lead to consolidation."
Bridget Micklem, the head of private pensions policy and analysis within the DWP, said there were a number of arguments against scale, pertaining to the market dominance of a limited number of providers, and that this factor would be weighed against the advantages of consolidation.
"There is room for government intervention, but there is also space for looking at 'Is the market taking us there anyway?'," she said.
The minister, then asked to elaborate what government intervention would involve, again emphasised 'quality' as the key measure.
"We have to make sure people are auto-enrolled into schemes of good enough quality," he said.
"If small schemes can't meet whatever quality definition or thresholds we have, they won't be able to continue.
"My sense is that the market will get us some of the way there in consolidation, but not all of the way – so we probably will be setting standards, and that probably will lead to further consolidation. "
Webb said he was also reluctant to impose a cap on pension charges, as this could lull employers into a false sense of security.
"The vey employers we are worried about – who might not shop around, might not be active consumers, might not drive a good deal – might actually get false comfort because the government has said 'This is good enough value'," he said, citing the example of a management charge of 0.99% under a hypothetical 1% cap.
However, he said the DWP was "absolutely prepared" to use a charge cap if the need did arise.