Background
The consultation set out various possibilities for dealing with the expected monumental rise in the number of small pension pots being accumulated following the introduction of workplace pension reform. On the one hand, these included relatively benign methods, such as improvements to the current regulatory framework for transfers. On the other, there were more ambitious options, such as automatic transfers into an aggregator scheme (or schemes), or the automatic transfer of a small pot to a new employer's scheme.
Small pots to move with the employee
Mr Webb has come out in favour of a system of automatic transfers to a new employer's scheme. Though many respondents apparently favoured the automatic transfer of small pots into one or more aggregator schemes, Mr Webb said these respondents also acknowledged this might not lead to real consolidation. So, having investigated further, he concluded that as any aggregator would need to have a low pot size limit (possibly around £2,000) to avoid market distortion, this would result in significantly less consolidation for individuals and would limit the administrative efficiencies available.
Given many individuals would have at least one active pot and one dormant aggregated pot he felt that, on balance, an aggregator approach would not meet his reform objectives. So, the final decision is to go with a system of automatic transfers to a new employer's scheme.
However, Mr Webb recognises there are various concerns about the implementation of such a policy. Consequently, he wants to develop a model of automatic transfers which includes only small pots created in automatic enrolment schemes. Mr Webb is clear that defined benefit and legacy pots should be kept out of the new model. He's also equally clear there should be scope to "opt out" of any automatic transfer and that there should be no need for "financial advice" before making any such transfer.
Difficult questions about precisely what should happen where people have multiple jobs or cease working for a period are now to be aired. Even so, Mr Webb is adamant that the proposed solution should be implemented as soon as practicable. To this end he anticipates working with all interested parties to develop concrete proposals for implementation and funding of his proposed way forward.
Other possible improvements to the existing system
Given the proposal to limit automatic transfers to small pots created under automatic enrolment schemes, Mr Webb is also keen to explore other means of improving pension saving more generally. To this end, he anticipates working with the pensions industry to see how feasible and/or practicable it might be to adopt a "virtual pension pot" solution. There is apparently appetite for those with "larger" pots to be able to see all their pension savings in one place and Mr Webb intends to work with the industry to explore options in this area.
Similarly, it's understood there is also appetite for more immediate improvements to the existing framework regarding voluntary transfers. Those lucky enough to have "big pots" (or even, one might say, lucky enough to have a proliferation of "small pots" outside of automatic enrolment schemes) might also benefit from the focus on improvement generally.
Short-service refunds to go
As widely anticipated, Mr Webb has confirmed that short-service refunds will be confined to the history books at the earliest legislative opportunity; at least in relation to defined contribution schemes. But he is receptive to the idea that it might still be possible to refund "micro-pots" (i.e. pots below £200 - though the exact figure is sill under consideration).
Conclusion
Although there is a fair bit of water to go under the bridge yet, it's clear that change is on the way. As ever, it will be interesting to see how the proposal that the pot moves with the employee develops. It is likely that "the tweaks" and "the exceptions" to the norm will be the focus of many in the industry!
