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Pension: Government dashboard plan problems exposed – multiple pots ‘threaten’ industry

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Pension assets can be split among many private schemes which is all the more likely in today’s working world. Over the course of a person’s career, they’re likely to jump from role to role and thanks to automatic enrolment rules, people are likely to set up pension plans with each company they work for.

While this should help people build the finances for retirement, it can also lead to them losing track of how many pensions they have and where they are.

This can be especially true for people who held jobs in their teenage years or do certain freelance work.

On this the government has plans to create a pension dashboard(s) which will allow people to have a single tool to track and manage their pots.

Additionally, on September 22 Guy Opperman, the Minister for Pensions and Financial Inclusion, outlined his plans for a working group which will help address the problem of multiple pot management.

As he commented at the time: “Automatic enrolment has transformed the way people save for retirement, meaning millions more can look forward to a more secure future.

“With the launch of the cross-sector Working Group and our ongoing efforts to make Pensions Dashboards a reality, we are focused on ensuring that consumers can stay on top of their pension savings, make more informed choices about their financial futures and have real returns from their savings.”

This working group will present their initial assessment, recommendations and an indicative roadmap of actions for industry during the autumn.

Ian Neale, a Director at Aries, reacted to this announcement, noting the pension industry may struggle with future plans

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A he explained: “At the moment there are eight million deferred pension pots; if nothing is done this figure is projected to rise to 27 million by 2035.

“Small pots threaten the financial sustainability of the provider, the Pensions Policy institute (PPI) has calculated that with the current industry average AMC (annual management charge) of 0.5 percent and no flat-fee, the required average pot size to break even is just under £4,000 (even the maximum permissible AMC of 0.75 percent requires about £2,300).

“One possible solution is to mandate incorporating a flat-fee structure (rather than just a percentage).

“Providers can then cover their costs on small pots more easily, but these are not favoured by the government (they’ve recently consulted on restrictions to the practice).

“There’s a good reason: it would be dreadful for pensions’ image if savers started to find that their fund has fallen significantly, or even disappeared, due to charges.”

He went on to also address the dashboard plans: “To solve the issue, the idea of a ‘virtual aggregator’ began to gain traction as early as 2012: this was the genesis of the current pension’s dashboards proposal.

“This could solve the problem of workers losing track of their pots during their working life, and facilitate voluntary consolidation.

“Mandating consolidation of pots within schemes, so that each time a worker joined an employer who has chosen provider A, they added to their existing pot with provider A, would be another partial solution.”

Despite the government’s intensions, Ian concluded by highlighting the cons of relying on a dashboard solution:

• “It assumes people will go onto the dashboard, and more than once. It might result in some consolidation on first release, but then many won’t revisit until it’s time to retire (and too late).

• “People like the idea of merging their pensions because they’ll be easier to manage. If they’re all on the same platform, that impulse will be weaker. You can manage them all in one place on the dashboard. The opposite impulse: not to put all one’s eggs in one basket, may take over.”

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