Pot transfer phase one to start October 2016: DWP
Plans to mop up multiple pension pots created under auto-enrolment will come into force in October next year, the DWP has confirmed.
In a 47-page paper, Automatic Transfers: A Framework for Consolidating Pension Saving, the DWP said a two-phase process will start in October 2016.
According to the proposals, the scheme is “an attempt to prevent a nightmare scenario” envisaged by the DWP of 50m dormant pension pots by 2050.
Phase 1 includes a limited number of schemes to test the process, together with a member opt-in. Phase 2 move towards full-scheme coverage and an opt-out member communication so transfers will take place automatically unless the member says otherwise. Transfers are limited to pots of no more than £10,000.
However, according to research by multi-employer trust Now: Pensions, many savers fear automatic transfers into worse-performing and higher charging schemes.
Morten Nilsson, chief executive of the company, said he was concerned there was absolutely no mention of safeguarding quality. He proposed limiting transfers to licensed schemes, adding that the £10,000 limit should be higher or it could disadvantage players that operated in the core auto-enrolment market.
Mr Nilsson also warned: “The cost of transfers also needs to significantly reduce, otherwise there is a real risk of transfer costs eroding pot value.”
Ben Cocks, head of Altus Business Systems, admitted the DWP’s timescale for implementation appeared demanding, but added: “We are committed to helping the industry meet those timescales. We already have a compliant ‘pot-transfer’ service in operation and will be launching a ‘pot-transfer’ service later this year once we have worked through the details with the DWP.”
Adviser view:
Stephen Womack, adviser at Northampton based David Williams IFA said advisers should be aware of the limits of what is proposed. He said: “This only includes those members invested in the default fund and does not include schemes where the first contribution was paid on or before July 2012 so very old funds are not covered.
“The government expects this will be a cost-neutral measure, because it will save on such things as administrator communication to members about old pensions pots. But, as usual we have to say that the proof of the pudding is in the eating.”