Creating a default consolidator model in the UK could create a “virtuous circle”, according to Zoe Alexander, director of strategy and corporate affairs at NEST, the UK’s largest pension scheme by members.
Speaking during a panel session at the Pensions and Lifetime Savings Association (PLSA) annual conference this week, Alexander said that in order to solve the “anxiety” around small pots the best place to start is with a “default consolidator model”, given the “general state of the industry at large”.
She said: “There’s a sense that the pot-follow-member model might fit in with a more mature industry but given that we have such a variable value for money across the industry, given we know where a lot of the small schemes are, moving them in between small consolidators gives us a better chance of retaining value for money for those schemes.”
Alexander added that with default consolidators a “virtuous circle” can be created where the regulatory bar to become a consolidator is set “pretty high” and then “you build scale in those schemes because the small pots are flowing between them”.
She continued: “That in turn gives you more access to better investment opportunities, potentially more illiquids. It gives you a better ability to drive down admin costs and you end up with a more consolidated market which we all think is the right direction of travel.”
Alexander stressed that there is “so much detail to still be worked through” and the industry is “really keen” to work closely with the government to work these details out.
Small pots consultation
In July, the Department for Work and Pensions (DWP) published an open consultation on ending the proliferation of deferred small pots.
The consultation proposes setting up a small number of authorised schemes to act as a consolidator of deferred pots under £1,000 after dropping the alternative ‘pot follows member’ model proposed in a previous call for evidence.
The government is currently “analysing” responses and expects to “take forward primary legislation to implement a statutory framework as parliamentary time allows, with further detail underpinning this to be covered in secondary legislation – which will be subject to formal consultation”.
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