The Association of Consulting Actuaries (ACA) welcomes the continued drive towards consolidating smaller occupational defined contribution (DC) schemes and members’ pension pots. At a scheme level, it is widely recognised that better member outcomes can often be achieved in larger schemes with stronger governance, well-designed and diversified investment strategies, and lower costs and charges from economies of scale.
For savers, the introduction of the pensions dashboard will mean it will be much easier to see all their pension pots in one place; however, for many, life could be made that bit easier through consolidating these pots with a single provider. When they are ready to draw their benefits, this will mean one retirement pack to read, one form to complete, and one administrator to contact. Recent consolidation among DC mastertrusts is potentially helpful for members, as it is easier to consolidate DC pots with fewer providers.
Clearly, investment options and charges need to be considered when assessing whether members could be better off consolidating pots, and doing so will not be suitable for all. For example, those with many small pots may find taking these in cash form is a better fit for their retirement spending needs.
Either way, employers have a key role in educating employees on their pension options, including the relative merits of consolidating pension pots. However, given the fine line between providing guidance and advice, organisations are understandably cautious on how far they go.
The ACA’s Pension trends survey, published in January 2020, found that only 40% of employers currently offer employees any assistance to help understand their retirement spending needs, with only 23% providing access to independent advice shortly before retirement, and only 7% on an annual basis. So, there is plenty of scope for employers to support their workforce in understanding pensions, including the potential value of consolidating numerous pots to unlock lower charges and a more streamlined retirement process.
Simpler benefit statements, which are currently being consulted on, are another positive step in making it easier for savers to bring together and compare different pension pots. We encourage the Department for Work and Pensions (DWP) to progress this initiative as a forerunner to the pensions dashboard.
Chintan Gandhi is chair of the PR committee at the Association of Consulting Actuaries (ACA)