Automatic transfers: consolidating pension savings
Automatic enrolment will see millions of people saving into a private pension for the first time and will make pension saving the norm. However, without further reform, automatic enrolment will create up to 50 million dormant pension pots by 2050.
Automatic transfers will help to consolidate pension savings into an individual’s current employer’s scheme. This will make it easier for people to keep track of their pensions saving, plan better for their retirement and secure a better income in retirement.
Chapter 1 explains the context for change and our work to date. Following our formal consultation, this paper sets out the background to our policy thinking and our proposals on how a system of automatic transfers would work in practice. The principle underpinning our proposals is to make it easy for pension savers to combine small, dormant pension pots into their current pension schemes, while keeping administrative complexity for schemes and employers to a minimum. Our solution aims to be cost-effective for the pension industry and members. We believe that our proposals, which are summarised below and covered in more detail in Chapters 2 and 3, strike a reasonable balance for individuals and the pensions industry.
Chapter 2 sets out our proposals for eligibility criteria for automatic transfers: which schemes, individuals and pension pots should be subject to the requirements. We intend to retain flexibility over these criteria so that, if necessary, we can modify them in the future as we gain experience of operating automatic transfers or to respond to the changing pensions landscape.
In Chapter 3 we set out how automatic transfers would be made. We will create a broad legal framework in the forthcoming Pensions Bill to permit a variety of implementation approaches to be taken. In this chapter we deal specifically with a ‘pot-matching’ IT solution and a model where employees pass information regarding their existing dormant pension pots to their new employers
when they start work, or at regular intervals.
Chapter 4 explains our next steps in the delivery of automatic transfers. This will begin with the successful passage of the forthcoming Pensions Bill through its Parliamentary stages, and continue as we work with interested parties to develop the transfers process and the detailed legislation to support it. In due course, following Royal Assent to the Pensions Bill, we will publish a formal consultation on draft regulations.