Govt may build advice into "Big Fat Pension Pot" scheme

The government is considering building regulated advice into its proposed system to aggregate small pension pots.

The government is consulting on how to prevent workers building up several small pension pots which are difficult to manage after auto-enrolment begins this October.

Pensions minister Steve Webb has dubbed the plan "Operation Big Fat Pension Pot". 

The government is considering creating either an aggregator vehicle into which pension pots are transferred when employees move jobs, or a system where pots automatically follow workers when they move to a new scheme.

Webb revealed the Department for Work and Pensions (DWP) is considering building advice into the automatic transfer system.

This comes after the industry voiced concerns automatically transferring pots would mean some individuals would lose valuable aspects of their previous pensions such as guaranteed annuity rates (GARs).

"We are talking about something on advice," said Webb.

However, he said the majority of small pots that would qualify for an automatic transfer into a new scheme or aggregator scheme would be too small for advisers to make a profit on.

"Who is going to advise on pots of £2,000?" He said.

"The overwhelming number of pots would be too small for advice so it would be hard to build advice into the system."

Webb added that implementing even a system where individuals are given an option to take advice before a transfer, rather than automatically fed into advice, would significantly delay pension reform.

In January, Webb angered IFAs when he told the Work and Pensions Committee that he does not want small employers to seek "expensive" advice on auto-enrolment.