She explained that small pots consolidators will have to demonstrate the highest value for the member under the proposed value for member framework.
The framework, once in place, will naturally drive consolidation into larger schemes providing better value for money.
“Surely it makes sense for scheme consolidation to happen before attempting consolidation of small pots at individual level,” she said.
“The concept of attempting individual and scheme consolidation at the same time is highly problematic. It makes no sense for a scheme to be a small pot consolidator if it is then, or becomes, at risk of being wound-up or consolidated if it offers poor value.”
She added: “Rather than focusing on building a small pots solution at the same time as other government pension initiatives, we believe the government should priortise the value for money framework and getting dashboards up and running. Both may go some way in helping to solve the small pots problem.”
In addition, Pete Glancy, head of pension policy at Scottish Widows, said efficiency needs to be at the core of any solution since high volumes of transfers will be needed to address the stock of small pots.
“Regardless of the model chosen, transfer costs will need to be much lower than is the case for typical transfers now or this will become a barrier instead of addressing the issue,” he said.
“Further examination is needed over the proposed process to ensure it is efficient, cost-effective, clear and simple for savers.
“Now the government has chosen a preferred model, we should give the industry group the flexibility to design a system that will work as efficiently as possible to encourage take up and ensure it is a success.”
On the fence
Elsewhere, Jon Greer, head of retirement policy at Quilter, said the firm does not have a strong view either way when it comes to the option of a clearing house or central registry.
He explained that the clearing house approach looks more involved and perhaps more costly to run.
“But rather than create a lot of complexity over the consolidator for pots of less than £1,000 is it time that we consider Nest as a port of call for small pots of less that £1,000, in the absence of a specific member choice,” he said.
“Whatever the solution, we don't think it’s probably the time to mandate consolidation of existing small pots. There are already mechanisms to ensure members receive value for money from their existing scheme.
“We would urge the DWP to not create complexity in the system. It isn't clear that the consolidation of small pots to a central provider will destabilise the workplace market – if anything it could make the majority of the workplace pensions market more profitable if administration of such small pots is taken out of the ‘main system’.”
