In response to the Department of Work and Pensions (DWP) consultation on pension small pots, the IMA supports the ‘pot follows member' option.
This will help keep members engaged with their pensions and supports the employer's role in pension savings.
The IMA believes that the alternative option - the aggregator model - may not achieve the DWP's primary goal of avoiding stranded small pots. Furthermore, there are difficult commercial issues with respect to how consolidation might operate.
The IMA suggests that the ‘pot follows member' approach should include an upper limit to ensure a real focus on small pots. Consideration should also be given to the expected administrative burdens and legal constraints, particularly if applied to existing pension contracts.
At a broader level, the IMA recommends a ‘bigger fat pot' project which would bring together state and pension pots in their entirety. A combined statement for all pension savers should be an explicit aspiration.
Jonathan Lipkin, Head of Research and Pensions said:
"Small pots can be a barrier to member engagement and a considerable drain on the system. Addressing this issue is a welcome step towards a more efficient pensions system.
"But pension savers also need to be given the full picture. Providing members with the total value of all of their pensions combined in one simple document will help give savers a realistic idea of how much they will get in retirement."
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