Pension providers have overwhelmingly backed radical Government proposals to build a new IT system, paid for by the industry, to facilitate automatic transfers of small pots.
However, concerns remain that people could lose out as a result of the reforms if they are transferred from a low-charge to a high-charge scheme.
This week, the Department for Work and Pensions set out plans to introduce an auto-transfer system for “pure” defined contribution pension pots worth less than £10,000. Any pensions with guarantees will be excluded from the reforms.
Policymakers are considering two different approaches to auto-transfers.
The first option, a “pot matching” system, would require schemes to upload information relating to members’ pots on to 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 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. The member would then give these details to their new employer, which would initiate a transfer.
A coalition of nine pension providers, including Standard Life, Legal & General and Scottish Widows, held a series of workshops recently to identify minimum requirements for a “pot follows member” system.
L&G pensions strategy director Adrian Boulding says: “We want to see the Government press ahead with building an IT system.
“We do not think it will cost a huge amount to build the system itself. The big cost will be for the providers, which will need to build infrastructure to link with the database in the middle.”
However, NAPF policy director Darren Philp says: “Auto-transfers could put workers’ savings at risk.
“We are concerned that a worker’s pension could be automatically shunted from an excellent pension into a bad one with high charges.”
There also remains disagreement about whether transfers should happen as soon as workers change jobs, known as a “member-specific” approach, or if they should be carried out periodically. The DWP is considering both options.
Low-cost pension provider B&CE says the member-specific approach could increase administration costs by 50 per cent, which would be passed on to members.
B&CE director of customer solutions Jamie Fiveash says the Government should instead allow schemes to “sweep up” small pots every two years.
Rowley Turton director Scott Gallacher says: “A massive multimillion pound IT project devised by providers and the Government has disaster written all over it.
“The problem is, some members will be automatically moved from a low-charge scheme to a high-charge scheme. People will inevitably lose out as a result.”