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Govt sets out auto transfer pension plans

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The Government has set out plans to introduce an automatic transfer system for “pure” defined contribution pension pots worth less than £10,000.

However, concerns remain that people could lose out if their pensions are automatically moved from a good scheme to a bad scheme.

The Department for Work and Pensions says the new system will initially exclude defined benefit pensions and will give individuals the right to opt-out if they do not want their pension to follow them when they switch jobs.

The Government has also proposed restricting the reforms to “pure” DC schemes, meaning that any pensions with guarantees would be excluded from the auto-transfer system.

Pensions minister Steve Webb says: “Instead of having lots of small pension pots all over the place, we want people to have a “big fat pot” which will buy them a better pension.

“When people change job, they often leave behind a pension pot which becomes forgotten and which can even attract higher charges once they leave the firm.

“We want to make it the norm that when you move job your pension rights can move with you if you wish. This will reduce the costs of providing pensions and will help people to be much more engaged with their pension savings.”

Labour Shadow pensions minister Gregg McClymont says: “The Government are still getting it wrong on small pension pots.

“These plans are vague and unconvincing and there’s still a big risk that savers’ pension pots can be transferred from good schemes into bad ones.”

Policymakers are considering the pros and cons of two different approaches to auto-transfers.

The first, a “pot matching” system, would require schemes to upload information relating to members’ pension pots onto a new central IT system which would facilitate auto-transfers.

The new IT system would be set up and run either by the industry or by Government. If the Government built and maintained the system it would look to recover the costs from the industry.

The second option would require schemes to give information to members about any pensions that are eligible for transfer under the new system.

When a person moves jobs they would give their pension details to their new employer as part of the induction process. Their new pension scheme would then initiate the transfer process.

The Government is also considering two options for the frequency of auto-transfers.

Under the “member specific” approach the auto-transfer would be completed “very shortly” after the member starts work with a new employer.

The alternative approach would see auto-transfers completed on a periodic basis.

The new auto-transfer system will only apply to pension pots which began to accrue after a certain date, although the Government has not yet decided when this will be.

In addition, the Government has confirmed plans to abolish short service refunds from 2014.

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Comments

There are 14 comments at the moment, we would love to hear your opinion too.

  1. Interesting. The salesman in me is resistant but I would be fascinated to see who would pick up the tab for the cost of administering this presumably seamless transfer?

  2. Oh and another point. There will be employees who have accrued a pot with employer contributions in less than 3 months/2 years.

  3. I agree with the principle here – pension investors often lose track of what they have and don’t place sufficient importance on the assets they have built up.

    These proposals would appear to address those issues.

    One concern is the risk of transferring into higher costed schemes and the fact they could potentially pay multiple ‘consultancy charges’ on the same pot. If such auto-transferring takes place, it’s important there is no client detriment.

  4. we deal with pension transfers all the time and feel this is a good idea.

    The first option of automatic movements seems better. However there is an issue of charges in a new contract being higher and the investment risks of new funds. That leads to who takes responsibility for the transfer decision – and that is where this idea will fall down. Unless they can find a way of avoiding the compensation culture black hole no employer or pension/HR department will want to take the risk. Even the FCA recently announced that execution only business is all subject to the clients perceptions. The claim chasers will have a field day with this concept.

    For that reason this is a non starter no matter how well intentioned.

  5. Pretty sure when you retire you can combine your pensions into a bigger pension pot.

    Who is then responsible for ‘losses’ as a result of being moved to a more expensive scheme?

    Is this another attempt by the government and pension providers to cut out the advice process?

  6. The new IT system would be set up and run either by the industry or by Government. If the Government built and maintained the system it would look to recover the costs from the industry.
    Here we go again, looks as if the government want to nationalise everything while we pay for it all.
    I’m an IFA, get me out of here

  7. There is a system already in place that most life offices have signed up with called Origo Options. Its a system that facilitates DC to DC transfer with a reduced paper trail. Not exactly built to the spec of the pot follow member world but possibly scaleable.

    The key issue here though is one that has been addressed by earlier comments and that is how can we be certain that this approach will be in the members best interests? Ok, so they can opt out of automated transfer but who will be talking to these people to explain why the transfer should, or should not take place ?

    Not as cut & dry as Mr Webb suggests.

  8. I can see certain IFAs quaking in their boots. Who would now pay over £1000 for ‘advice’ when they can transfer their pension for free.?

  9. anon @ 5.54
    but what if paying £1000 for the advice resulted in a gain far above that figure?
    Conversely, if you transfer for free, with no advice, how do you know you are doing the right thing?
    I would certainly pay someone to stop me doing the wrong thing.

  10. I think it is actually a good idea for any post stakeholder DC plan. So long as the plan is stakeholder friendly and it is going to a single charged plan with an AMC below the stakeholder max AMC, it is made the default option, the employee can opt out, can seek advice to or not to (perhaps with a reduced KYC requirement and a fixed advice cost whatever thew size of the tf pot. We are after all tal,king about modest pension pots of perhaps only 1k to 10k wish which most advisers will not even advise on now as the KYC costs exceed lprobabke benefit to the client of taking advice!

  11. Anonymous | 23 Apr 2013 5:54 pm

    Were you born a fool or did it take years of practice.

    If they are transferred into a more expensive pension and into an inappropriate fund I wouldn’t say that it is ‘free’.

    I am more than happy for people to transfer pots automatically for ‘free’ when they are less than £10,000 as long as when the dung hits the fan the IFA community doesnt have to pick up the bill.

    You obviously have a short memory – remember all those clever people who used Equitable Life to cut that nasty financial adviser who actually wanted to be paid for his work – look what happend there.

  12. @Sean – We are talking about small pots. Using an example Customer joins his employers single charge GPP and as adviser to the employer asks if he can transfer his paid up previous employer single charge stakeholder or GPP worth all of £2,500. What do you advise him to do and how much do you charge him?

  13. its very useful site because each and every information belongs to education available in your site.it’s useful for every student.i have seen your rss code it is very good and one of my friend Mr Rajiv suggest to visit your site.

    Latestgovt jobs,notifications,jobs

  14. Could work provided the clients are given the ultimate decision to say yes or no, and provided they are given the differenced between the two schemes in writing in the same format from the existing company and proposed new company so they can see the differences and decide themselvesd. These may be small pots but that doesn’t make them less important to the indivudual, if all you have is 3 pots worth £9K each then each of those small pots means a lot to you! Risky business transferring without advice though as I doubt the info will be clear and easy to understand and some people are bound to transfer from good to bad.

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