The Department for Work and Pensions has unveiled the details of how its long-awaited automated transfer ‘pot follows member’ initiative will work, stating that its preferred approach is for pension schemes to use a ‘network’ of registers when transferring pots.
In a framework document published online today (11 February), the government published proposals for consolidating pension saving via automatic defined contribution scheme transfers through a ‘federated model’.
It explains this would take the form of a network of “interoperable registers” that will hold information about pension pots eligible to be automatically transferred. This network will be used by pension schemes to match information about pots eligible to be automatically transferred.
It was chosen from several proposals put forward during a stakeholder working group in 2014 because of reduced concerns over a single point of failure and a single point of data storage, DWP explains.
The model allows for registers to operate in different ways according to the different needs of sections of the pension market, it adds. For example one register might accept data from schemes in a manual format, while another may only accept data sent by electronic messaging.
The DWP explained that competitive forces should ensure they stay up to date over time. In contrast there were concerns that 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 extent.
As previously announced, pension pots will automatically follow the member only between ‘pure’ money purchase schemes, with the paper setting out several types of scheme not appropriate for individuals to be automatically transferred from or to.
The DWP said this is not appropriate for schemes with only one member, executive pension schemes where a company is both the only employer in relation to the scheme and the sole trustee, and some small schemes with fewer than 12 members where all the members are trustees.
The DWP also reaffirmed the criteria which pensions pots have to meet to be eligible for automatic transfers.
The first contributions must be received on or after July 2012 to coincide with the beginning of auto-enrolment; the pot must be worth £10,000 or less at the point of valuation and this will be reviewed every four to five years; and the pot must be invested in a charge-capped default arrangement at the point of valuation.
For a pot to be eligible to be automatically transferred on a scheme’s register, members will have to provide their first initial and surname, date of birth, gender, national insurance number, employer that the pension pot was accumulated with, pension scheme tax identifier number, and pot identifier or reference number.
In December, pensions minister Steve Webb announced that ‘pot follows member’ is due to be implemented from October 2016, but several industry stakeholders have warned of the potential administrative burden and the potential cost consequences of the chosen model.
peter.walker@ft.com
