In the May 2013 edition of Pensions Priorities, we referred to the Government Command Paper on changes to force, in certain circumstances, the transfer of pension pots when an employee moves jobs. This proposal, known as "pot follows member", is designed to deal with the problem of a peripatetic workforce having a large number of small pension pots, and to reduce the administrative costs of schemes trying to manage small pots.  In February this year, the Government published a framework for this system of 'automatic transfers' which includes that:

  • the system will be facilitated by pension schemes rather than employers;  
  • eligible pots built up in money purchase default arrangements in workplace schemes and below a certain size will be automatically transferred;  
  • members will be given information about the transfer and will be allowed to opt out if they do not want their pot to be transferred;  
  • the preferred model for implementation is what is termed the 'federated model' which will see a network of registers (maintained either by schemes themselves or by third parties contracted to do so) that store and match information about eligible pots.

It is reassuring that the Government is considering a phased approach to implementation, to allow the model to be tested ahead of the full roll out which is intended to take place from October 2016 and that the system will not be the responsibility of employers, who are not most closely connected to the pension rights.  However, the cost of this process as it is rolled out may be significant so the proposals should be monitored as they are developed for cost and administrative challenges.