Pensions minister Guy Opperman has raised the possibility of scrapping member-nominated trustees, demanding a surge in professional trustees as part of his plans for consolidation in the defined contribution space.
Speaking to a Lang Cat podcast aired on August 30, the minister also confirmed that the Department for Work and Pensions will launch a call for evidence on small pots in October, while a consultation into achieving “value for money” is slated to launch on November 1.
Small pots are seen as a problem for master trusts, with wasted administration costs of around £1bn to £3bn every year forecast by 2030, according to the Small Pots Cross-Industry Co-ordination Group.
Opperman admitted that on the issue of consolidation: “I look back on my time in this, and I personally believe I’ve been too timid.”
We need to make the position of a trustee a bigger and better thing
Guy Opperman, pensions minister
Wholesale reform of trustees
The government has repeatedly made the case for DC consolidation, particularly with the aim of providing value for money.
A consultation on value for money will be “very much on Australian lines”, Opperman said, referencing the Australian pensions landscape, which has encouraged mass consolidation.
“It is very much on outcomes, and cost and charges, while still a factor, will not be the driving force.”
Referencing correspondence with former Australian superannuation minister Nick Sherry, Opperman continued: “He is unequivocal that you have to [implement] effectively mandatory consultation in all but name, and you have to do massive nudges and value for money tests that force consolidation.”
“We need professional trustees. There should be wholesale reform of the trustee situation,” he said.
The minister added that getting rid of MNTs is “part of the conversation”, and that “the collection of trustees has got to have a professional trustee”.
“You can blame me, because myself and DWP have made the life of a trustee much more complicated,” he said, pointing to new obligations on environmental, social and governance reporting.
“We need to make the position of a trustee a bigger and better thing. These are professional trustees who are going to be handling very large amounts of money,” Opperman added, again referencing the Australian pensions landscape.
The role of the MNT traces back to the Maxwell pensions scandal, with the position created to shore up scheme governance after the former Mirror owner Robert Maxwell misappropriated funds from the Mirror pension scheme.
Maggie Rodger, co-chair of the Association of Member Nominated Trustees, said that abolishing MNTs “would be a mistake for a number of reasons”, and that MNTs help to avoid “the groupthink that can creep in when only industry ‘professionals’ are around the table”.
“First, let’s think back to why the position of MNT was originally created following the Maxwell scandal. It was to ensure that there were people on the board whose total focus was on ensuring that the funds were managed in the best interest of members. MNTs have skin in the game,” she explained.
“Second, the AMNT agrees with the position that all trustees should be operating at a high level. But, rather than abolishing lay trustees with the loss of their knowledge and links with the scheme members and scheme sponsors, we should be ensuring that all trustees are trained to a high level.”
Nest cannot participate in member exchange
One path to dealing with small pots is the idea of member exchange, which works by identifying members with a small, inactive pot at one master trust and an active pot at another master trust, and transferring the inactive pot into the active pot.
Three large master trusts — The People’s Pension, Smart Pension and Now Pensions — originally investigated the possibility of a member exchange pilot, assisted by Nest as an observer on the exercise.
Nest is currently participating on the same terms as other providers, as the pilot has yet to launch. It would be an observer as it cannot legally undertake bulk transfers without consent.
Following a recommendation in a Department for Work and Pensions review of Nest, the master trust is “considering actively participating in the pilot via a rule change, should early findings suggest that the idea is likely to be both operable and acceptable to all trustee parties”, according to a June update from the Small Pots Cross-Industry Co-ordination Group.
The trial ground to a halt earlier this year over complications caused by the change of the normal minimum pension age, but the Opperman confirmed that the member exchange pilot, run by Capital Cranfield professional trustee Andy Cheseldine, will launch in October.
“He doesn’t have as many people as he would like on that pilot, because some organisations […] have decided they are struggling to be part of that,” the minister said.
“I am having robust discussions with said organisations to try and point out to them that that would be ill-advised [and] short-sighted.
“Organisations like Nest have to be part of this, I’m afraid. The idea that they’re going to say, ‘it’s too complicated’, it’s just not tenable, it’s not acceptable,” he continued.
“Their reluctance to be part of the member exchange pilot is certainly surprising from a government point of view, and certainly should be criticised, and I will be criticising them but in a polite way.
“The alternative is — and this is the bit that industry hate — is then, they get upset when I go ‘fine. If you aren’t prepared to do this then I’ll just have to do stuff with or without you, and I’ll just crack on’”.
Small pots member exchange trial scuppered by NMPA
A trial being developed by three master trusts to exchange small pots has ground to a halt before it even started, due to the new normal minimum pension age rules, and will only be able to advance if new legislation is introduced.
A Nest spokesperson said: “We share the minister’s view that this is an important issue, and will continue to engage positively with the member exchange work.”
Cheseldine confirmed to Pensions Expert that Nest has “engaged throughout the [member exchange] project, so we know what their issues are and how they are trying to address them”.
“We are extending the pool of players for the pilot exercise, partly so we can identify any problem areas early on. But it’s clearly in everyone’s interests if we can limit the proliferation of micro pots,” he said.
