The Government’s preferred pot follows member proposal could put pension pots are risk of fraud, Faisal Aziz, head of Cognizant Business Consulting, warned delegates at the Corporate Adviser summit last week. By Pam Atherton
Steve Webb’s pot follows member plan to aggregate small pension pots has received a lukewarm response from the industry, with little consensus across the industry. Aziz said that without engaged consumers, the potential for fraud was massive.
Aziz said: “The data has to be secure and authenticated for this to work. If you just use a National Insurance number without authentification and member engagement, it runs the risk of undermining the entire industry.”
Research by Origo passed to 50 organisations highlighted the difficulties of implementing a transfer process that assumes member disengagement and which would need to be built from scratch.
“If assume consumer disengagement from the process, you need an infallible system and to be sure that you can move money around without errors. Such as system has never been built before and given the history of the UK pensions industry, now is not a good time to do it. Banks and credit card companies have an existing infrastructure and decades of experience in money transfers.”
Aziz said it was possible to secure member engagement, citing the introduction of a virtual aggregator in the Netherlands that attracted 40 per cent of Dutch adults in the first year.
Aviva head of policy John Lawson said the government was talking about transferring small pots on one day a year, posing a major threat from hackers, while First Actuarial’s Henry Tapper pointed out the government had a poor track record in building IT systems from scratch.
Delegates drew attention to Lorica’s new virtual aggregator and TISA’s transfer process for ISAs as possible models. Lena Tochtermann of the CBI felt the pot follows member proposals had been rushed and that there were serious financial and legal issues to address, while the cost of a clearing-house would have to be paid for my providers and members. Lawson estimated the system could cost up to £100m and impact AMCs.
Aziz said: “We need to get the data infrastructure and member engagement in place first. The risks of getting it wrong are unimaginable. We need to solve the small pot problem, but we need to do it in a measured way.”
But Scottish Widows director of employee benefits, Andy Barton, warned delegates that if the industry kept saying ‘no’ to Steve Webb’s pot follows member proposals, a system might be mandated onto the industry. “If you have 500,000 pots moving each year the technology is not that difficult. There are risks but it can be done,” he said.
Tochtermann said the industry should be more optimistic about consumers’ appetite for moving accounts, citing increased switching for gas and bank services.
James Biggs of Lorica Employee Benefits suggested that Lorica’s newly launched client asset aggregation service was like a virtual aggregator already. “It captures the whole of your financial picture,” he said.
Aziz added that the current analysis of transfer costs assumed that all the paperwork was in place and that it failed to capture the costs borne by employers.