Kate Smith, Regulatory Strategy Manager at Aegon said:
“From a saver’s perspective the news that small pension pots will follow them from job to job is good news. The modern workforce has multiple jobs and with more than five million now auto-enrolled, many more people have workplace savings. The new system will see people’s savings transferred between pensions of comparable charges and the result will be that it’s simpler for them to keep track of what they and get a complete picture of how ready they are for retirement. One of the major challenges people face today is that with savings scattered between different pensions, it can be hard to know how each fund is performing and what the total value of your savings is.
“From an industry perspective, we’re pleased that the DWP has listened to industry feedback on the need for a phased implementation approach. This will allow the industry to understand what works and what doesn’t and to make improvements along the way. Restricting the first phase to a number of providers will remove the risk of pension fraud. This should give customers confidence.
“To be successful, automatic transfers need to be cost-efficient. Transfer costs must be within the 0.75% charge cap for default funds, and this may prove difficult given the current regulations and cost of paying for provider’s chosen register, which is currently unknown. One way to drive cost-efficiencies, and therefore policy success, is to allow pension providers to move customers, on bulk, to modern efficient platforms, which then digitally interface with the chosen register.’’
Pot follows member – Aegon’s understanding of how the system will work
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The DWP has published it’s ‘update’ document setting out how automatic transfers of small pensions pots will work
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Eligible small pension pots will follow the member as they move from job to job, allowing members to keep track of small pension pots by enabling consolidation
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An eligible small pension pot is one that is pure moneypurchase (i.e. DC pension savings), with no guarantees, with a maximum size of £10,000 and will be limited to individuals saving in charge capped default funds and where the first contribution is made on or after July 2012 (the date voluntary automatic enrolment started)
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Pension pots will be matched by a private federated model, a network of interoperable registers which will hold data on eligible pots and be used by pension schemes to match eligible pots
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Implementation will be on a phased approach, starting with the top 20 pension administrators in phase 1. During this phase eligible pots will be matched and individuals have the option to transfer.
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Phase 2, no date has yet been set, will allow for a fully automated process and individuals will have to opt-out of the transfer process. It’s possible that further schemes may be added at this stage.
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DWP will set the criteria for eligible providers later in the year. Further phases may be introduced at a later stage such as expanding the scope to include small pots not invested in default funds and to pre July 2012 moneypurchase benefits
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