Out-Law News | 11 Dec 2014 | 11:53 am | 1 min. read
Speaking at a seminar in London on the future of the pensions market, Steve Webb said that the planned mechanism should be in place by "around October 2016" and could benefit up to 95% of the pensions market.
"The basic idea would be that as you move job your new scheme checks with a registry whether there is a stranded pot for you - if there is, they pull it across from the old scheme," he said, in comments reported by FT Adviser and confirmed by the Department for Work and Pensions (DWP).
The announcement was the first confirmation of an expected start date for the scheme, the introduction of which was confirmed last year.
The scheme is intended to reduce the number of small pension pots workers accumulate due to more frequent job changes, which is expected to be exacerbated by reforms which will require most workers to be automatically enrolled into a workplace pension scheme by 2018. People now have an average of 11 jobs over the course of their working lives, a statistic which could lead to the creation of around 50 million dormant pension pots by 2050 without action, according to the DWP.
The government has previously said that automatic transfers would apply to any pension pots worth less than £10,000 and created after a certain date, but would initially only cover those savings accrued through defined contribution (DC) schemes such as money purchase schemes. Transfers would be operated by pension scheme providers and administrators, and individuals would be able to opt out of the process if they chose to do so.
From October 2015, those who join a workplace DC pension scheme will no longer be able to claim back a 'short service refund' of any contributions they have paid into that scheme if they leave the associated employment within two years. The government had previously announced that short service refunds would be abolished ahead of automatic transfers coming into force.
Pensions expert Simon Tyler of Pinsent Masons, the law firm behind Out-Law.com, said that although the pensions industry would welcome now having a "set date" to work towards, an October 2016 deadline could prove "challenging".
"There is a lot of work to be done," he said. "Data hubs will have to be created, providers will need to put complex processes in place to identify pots to be transferred, and security measures will be required to ensure that pots get transferred to the right place, and not to fraudsters."