The Department for Work and Pensions (DWP) has published more details on its plans to introduce automatic transfers of small pots when pension scheme members move jobs.
Its Automatic transfers: A framework for consolidating pension savings report includes how the government will role out the programme and which schemes are in scope.
The policy would take a federated two-phase approach, with phase one being operated through opt-ins by scheme members, who will be contacted to confirm they want these pots to be moved to their new scheme. It will then transition to a fully automated opt-out model.
The paper also outlined that under the plans, schemes would have to set up their own register of dormant pots either in-house or with a third-party.
It also confirmed that money purchase pension pots of less than £10,000 would automatically follow a member to their new job.
Only pension schemes which are subject to the 0.75% default fund charges cap, and received the first contribution on or after July 2012, will be included.
Automatic transfers will also be restricted during its initial implementation to a handful of larger schemes, to allow the government to monitor its progress.
The reforms, which are set to tackle an estimated 50 million schemes with small pots, are due to come into affect from autumn 2016.
Pensions minister Steve Webb said: “We don’t want members to end up with more dormant pots, but we expect 50 million dormant pots by 2050 if nothing is done.
“This is the rationale behind the system of automatic transfer of small pension pots into the new employer’s scheme when a member changes employment, which was outlined in the Pensions Act 2014.
“To ensure this system is workable for both industry and members, we need a practical implementation model.
“As outlined in the paper, it is my aim that automatic transfers will first apply to a limited number of schemes, but will still cover the vast majority of members. This first stage will introduce automatic matching of an individual’s small pots. The individual will then be contacted to confirm if they want these pots to be moved to their new scheme.
“With minimal change, the system will then transition to the opt-out model. The transfer of dormant pensions will then take place unless the member decides not to make the transfer.
“My goal is for the initial phase of automatic pot-matching to be in place by Autumn 2016.”