Call for small/lost pension pots fee exemption
In the March Budget, the government announced it would give the pension industry a deadline of 2019 to introduce a pensions dashboard to allow savers to view all their schemes in one place.
However, Michael Johnson, a research fellow at the Centre for Policy Studies (CPS) argues that simply providing the information isn’t enough to spur people to act. Instead, to unlock its huge potential, users should be able to consolidate disparate pots in one place.
Johnson, the man who came up with the idea of the Lifetime ISA, said: “This would improve their bargaining power with the industry, leading to larger retirement incomes via lower costs, and other scale economies. It would also help drive competition within the industry, kindling trust between it and consumers. Ultimately this would encourage more people to save more, helping to close the savings gap, to the benefit of the individual, UK plc and the industry.”
In his report published today looking at how to deliver the pensions dashboard ahead of the deadline, Johnson outlines nine proposals to be considered as part of its implementation:
1. The first dashboard should be hosted on a “.gov.uk” website, perhaps overseen by the forthcoming pensions guidance service.
2. A multi-dashboard market should be served by a central communications hub to minimise the number of required connections between each dashboard and the many industry participants. The hub should be overseen by a body independent of the industry.
3. The government should prepare the ground for the dashboard by mimicking Australia’s SuperStream programme. This would require employers, pensions funds, service providers and HMRC to adhere to standardised electronic pensions data and payments processing, linked by National Insurance number, to facilitate consistent messaging standards.
4. The forthcoming Funds Market Practice Group report into transfers should favour non-cash transfers, where possible, and insist that assets may only be transferred to accounts controlled by the customer and bearing his National Insurance number.
5. The dashboard’s ministerial champion, Harriett Baldwin MP, should appoint a small governing board, independent of the industry, to mentor the dashboard project. It could operate under the aegis of the forthcoming pensions guidance service.
6. The government could provide some focus to the development of the prototype by requesting that it be built specifically for the 4.6 million members of the Local Government Pension Scheme (LGPS).
7. From 2019, small pots (with less than £2,000, say) and lost (or orphan) accounts should be exempted from all charges and fees.
8. A 2019 deadline should be set by when all life companies’ closed books should be “dashboard-ready”.
9. The government should set some interim delivery dates for the dashboard, ahead of final delivery in 2019.
Johnson added: “A pensions dashboard should be merely the first step towards a comprehensive dashboard to display all facets of our personal finances. It should display bank balances, savings accounts and investments alongside liabilities so that, for example, users would be a mouse click away from offsetting high cost credit card overdrafts and consumer loans against any positive cash balances (today yielding next to nothing).
“Thus consumers would be able to dramatically improve the return on their assets, by disintermediating the retail financial services industry, much of which we do not need. Indeed, it is one of the underlying causes of the UK’s poor productivity growth.”