The Department for Work and Pensions has indicated its preferred delivery method for pot follows member reforms will be private sector IT vendors running the automatic transfer system.
The reforms aim to address the issue of stranded pension pots, with the average UK worker expected to change jobs 11 times.
The DWP says its preferred delivery mechanism is a “federated” model administered by private sector firms.
Other options on the table inc-lude a central-government database funded through an increased levy from The Pension Regulator or a system using existing HMRC infrastructure.
Speaking at a Tisa event in London last week, DWP head of automatic transfers policy in the private pensions policy division Toni Clark said: “This would be an integrated network of databases and registers. It will be the open-standards market option where people will be able to come into the marketplace and become a provider offering to match pots and move people between schemes. It would drive down costs through competition.”
Clark adds the delivery method adopted will need to be reliable enough to ensure pots can be matched accurately between ceding and receiving schemes, without risk of the money being incorrectly transferred to the wrong recipient.
It comes amid fresh warnings over a possible spike in pension liberation fraud triggered by the proposals.
Standard Life head of workplace strategy Jamie Jenkins said: “This will be used by some people to make money by criminal means. There will be people out there thinking, ‘as soon as I can understand this I will figure out how to exploit it to make money out of it’.”
Pinsent Masons partner Simon Laight warned that checking for liberation fraud has slowed down transfers and that pot follows member reforms could reverse that: “With automatic transfers coming in you have got potential problems, because part of liberation being slowed down has been through putting the onus on the transferring scheme to do the due diligence and raise awareness.”
Clark added: “We need a system that is simple without increasing the risk of pension liberation.”
Pilot Financial Planning chartered financial planner Ian Thomas:
Looking at the big picture, pot follows members must be better than having multiple small pots. The only concern is where it gets moved from a good scheme with low charges to a worse scheme. My instinct is that an open-standards option makes sense as it increases competition. Handing a contract to an IT provider could become expensive even when tendered regularly.
Thameside Financial Planning director Tom Kean:
Using a private vendor like an Origo has to be the answer here. Anyone that suggests otherwise is in my view misguided. You just know that if the system were run by a government agency it would end up being disastrous.
Possible delivery methods for pot follows member:
The ‘federated’ model:
The Department for Work and Pensions’ preferred method for delivery. It involves private IT vendors aggregating data across pension providers, allowing pots to be matched between ceding and receiving schemes.
Central government option:
This option would involve a Government agency, likely to be either the DWP itself or The Pensions Regulator, running the automatic transfer system. It would house all the necessary data and use it to match pots. Funded by an increase in TPR levy.
The DWP has considered using existing systems at HMRC. This would involve piggy-backing on infrastructure used to process tax under PAYE, for example. Employee data already held would be used to match pots.