Having voiced my questions on some of the key policy issues on the recently proposed small pots solution, I now return to the world of actually delivering the thing. 

I am just going to assume the decision is made on the key policy issues. It will be multiple consolidator, we will have a clearing house, some criteria will be set for what a “small pot” is and there will be a method for choosing which schemes can take on pots for consolidation.

But what will we need to do to make this real?

Regulation

Pensions providers and schemes will have to be forced by regulation to give away their pots. Some might not be awfully happy about it, especially if they are not a chosen consolidator, and nobody is going to volunteer. 

The other reason we will need regulation is as cover. The attempts at a voluntary scheme stalled because trustees were not comfortable moving customers in case in the future they get hit for customer detriment: “you moved me to a scheme with worse fund performance”.

Regulations will also be needed to give the DWP / TPR et al the power to enforce the rules.

In fact I do wonder if regulation is where this could all fall apart. Is there really a chance it can be passed before the next general election?  I doubt it, and it’s not clear it will be an issue for Labour when they likely get in.

Governance and delivery program

Somebody needs to be in charge and they need the power to make decisions. At the same time the realistic concerns of industry in the practical implementation need to be taken into account. 

Quite quickly, small pots moves from being a policy discussion and turns into an IT project. We need to be better as an industry and government at doing this. 

My proposal would be to keep the idea of the working groups run by the PLSA and ABI and put DWP oversight onto these and bring in full time staff or contractors to assist in this. 

Small admission here, I would certainly be looking to be part of this process, either on behalf of one or more organisations or indeed contracted to the project.

Procurement

There are a few organisations I can think of that would be very keen to get involved in running the clearing house.  Some staffed by a lot of people supporting the other lot in the Ashes. 

But a very harsh lesson from Dashboard is you cannot go round the government procurement process and it is not a quick process.  This must be started as soon as possible.

Other stuff

There will be a lot of stuff needed, such as:

• Contracts and liability
• Testing plans
• Delivery timetable
• Communications
• Process for signing people up to nominate their consolidator.

Fix transfers

The process as laid out in the consultation blithely ends with “…transfer of the deferred pot”

It’s not exactly a secret that pensions transfers are a bit of a mess at the moment.  Just see my recent post on the matter.

Something doesn’t add up on Pensions Transfers (laverockfc.com)

And small pots will wash 12 million pensions through at outset and probably double the current amount of transfers per year after that. The estimate is that sub £1000 pots works out at about a million a year. 

This can cause several problems. It could break some firms’ service. It could increase the cost considerably or slow down all the other transfers even more.

The answer is automation. No matter what the problem is.

I don’t mean automation of the communications between providers. ORIGO and EQUISOFT already fixed that years ago. What we need is automation inside firms, where most transfers involve human beings keying stuff and checking things. 

This issue is with pensions firms and is something they really need to start to think about soon.  Otherwise when small pots is delivered they will be in deep trouble operationally.  And this will probably kill any ambitions they might have to be one of the consolidators.

Conclusions

It’s easy to be negative but I go back to the point that small pots is an issue that needs to be solved and if done right will lead to better outcomes for people and make pensions much more efficient. It is good to see it back on the agenda as I feared it had been kicked into the long grass. 

Now we have to deliver it.