A new automatic ‘pot follows member’ process, that enables small workplace pension pots to transfer with the scheme member when that person changes job, is expected to be operational by Autumn 2016.
The announcement was made by Pensions Minister, Steve Webb who was reported by FT Adviser to have said: “The basic idea would be that, as you move job, your new scheme checks with a registry to find out if there is a stranded pot for you. If there is, they pull it across from the old scheme.
“Providers will get the infrastructure up and running. We will then get it started. And what we plan is to do it on an opt-in rather than an opt-out basis. Eventually money will follow you by default.”
“If we’re going to do this thing we’ve got to do it in bulk, we’ve got to do it efficiently and we’ve got to streamline it. There are good examples on ISA transfers that work really well and really cheaply. “It ought not to be rocket science. All we’re doing is taking a pot with somebody’s name on it and matching it to the same person somewhere else. But we’ve got to get it right and that’s why we think this incremental approach is best.”
The purpose of the scheme is to reduce the number of small pension pots workers accumulate due to more frequent job changes. The increase in the frequency of job changes – people now have an average of 11 jobs over the course of their working lives – is expected to be exacerbate reforms which will require most workers to be automatically enrolled into a workplace pension scheme by 2018.
The government has previously said that automatic transfers would apply to any pension pots worth less than £10,000 and created after a certain date, but would initially only cover those savings accrued through defined contribution schemes. Transfers would be operated by pension scheme providers and administrators, and individuals would be able to opt out of the process if they chose to do so.
Nicola Prince, Director of Employee Benefits at Beckett says: “The announcement of a target date will put pension providers under pressure and there is already a general feeling that this date will be challenging. There is no detail yet on how more complex arrangements will be treated. It is likely that the first transfers using this system will be aimed at passive pension members who are not actively managing their pension choices – but we await further detail!”