Ian Neale, director at Aries Pensions UK, discusses how we could solve the small pots problem by giving people a clear overview of what they have accumulated over the years. But who would be in charge of this operation?

As discussed in my previous article, Steve Webb's consultation last December on small pots started a debate about a problem set to grow enormously. Linked to the proposed ban on refunds from occupational DC schemes, the advent of auto-enrolment will result in millions of new savers losing track of what they've saved towards retirement as they move from job to job (an average of eleven times during their working life, DWP research has suggested).

But in plumping for an automatic transfer solution, the Government could be side-tracked into a tar-pit. Formidable obstacles have already emerged, some connected with the ever-present concern for consumer detriment. These will further limit pensions which are auto-transferable (the Government has already declared out of scope all benefits except those accrued by early leavers who have been auto-enrolled into trust-based DC schemes).

It's not so important that the worker physically accumulates all these separate funds one by one like a snowball. That involves a lot of expense and administrative hassle, and in any case with all the opt-outs, carve-outs and exemptions it still won't be one giant snowball at the end. What's more important, to meet the policy objective, is that the worker can see details of all past pensions online. Nothing needs to move anywhere until they need their pension.

There is already a consensus that a central registry/database of some kind will be required, whatever the solution to the small pots problem. The question is, what will it hold, who will develop and host it, and who will have access? There's a huge prize to be gained here if the Government is ambitious enough.

HMRC NICO already holds details of NICs paid for each individual, so it should be possible to automate the state pension forecast service. To add information about occupational pensions, as part of the P45 procedure when an employee leaves service the employer could file information about the accrued pension rights. Contract-based pension providers could be asked to supply fund values as part of end-of-year scheme reporting, updated annually and even projected online using mandatory SMPI assumptions.

In this way, ALL past rights from occupational/workplace pension schemes could be visible in one place, with individual access via the Government Gateway (millions of workers already file their tax self-assessment in this way). More than that, they could gain an idea of their total future pension.

Back in 2004 the Government legislated for combined pension forecasting, but it never happened. This could realise that dream.


Ian Neale, director Aries Pensions UK