The Department for Work and Pensions has published more details on its plans to tackle an estimated 50 million small pension pots, including which schemes are in scope and how the programme will be rolled out.
In a paper published today, the Government confirms money purchase pots of less than £10,000 will automatically follow a member to their new job. Only pots which are subject to the 0.75 per cent default fund charge cap and received the first contribution on or after July 2012 will be included.
One member schemes, executive pension plan, SSAS, pots that have been flexibly accessed and schemes with guarantees or promises attached will not be in scope. In addition, additional voluntary contribution schemes “would not usually” be included, the paper says.
The Government also explains why it chose the “federated” model of multiple registers, rather than a single centralised aggregator.
Labour has said it would back the aggregator model if it wins the general election.
The DWP says: “While a centralised register would require all schemes to communicate with a single register, the federated model reduces concerns over a single point of failure and a single point of data storage. It also allows for registers to operate in different ways according to the different needs of sections of the pension market.”
It adds: “There were concerns a single register – whether provided by Government or by the pensions industry – may not keep up to date with technological advances and industry innovation to the same event.”
Pensions minister Steve Webb revealed in January that the system would initially be introduced on an opt-in basis with the largest 20 providers.
The paper confirms the system will transition to a fully automated system on an opt-out basis “as soon as is practicable”. The Government says it will decide at this point whether the entire pensions market should be included or whether full coverage should follow the successful switch to opt-out.
But it warns the switch to full market coverage faces a risk of inadvertently feeding pension scams by automatically transferring savings from legitimate schemes to vehicles designed to unlock pensions.
Expanding the scope of pot follows member to pre-2012 pots will also be considered once the current proposals are implemented.
In a written ministerial statement, Webb confirms the initial stages of pot follows member should be in place by Autumn 2016.
He says: “As outlined in the paper, it is my aim that automatic transfers will first apply to a limited number of schemes, but will still cover the vast majority of members. This first stage will introduce automatic matching of an individual’s small pots. The individual will then be contacted to confirm if they want these pots to be moved to their new scheme.
“With minimal change the system will then transition to the opt-out model. The transfer of dormant pensions will then take place unless the member decides not to make the transfer.
“I want to introduce the automatic transfer of pots as soon as possible, while also giving sufficient time for the industry to develop the new systems required.”