‘Pot follows member’ put on hold

The Government has abandoned plans to introduce a new system of automated transfers, under which DC savings of auto-enrolled workers who move to a new job, would follow them to their next auto-enrolment pension arrangement. A written Ministerial Statement states that the automatic transfers regime, and other legislation for defined ambition and collective DC schemes, has been put on hold to allow the industry to adapt to other recent changes (such as the introduction of DC flexible access), but may be revisited in future.

Schemes are likely to welcome the news that they will not have to adapt their systems to implement another new regime, but there is a downside to this announcement. The automatic transfer regime was intended to mitigate the risk that, following the recent abolition of short service refunds, occupational DC schemes would bear the administrative cost and burden of maintaining ever-increasing numbers of very small DC accounts for members who have changed jobs. From a member perspective, DC savings would, once the proposed system was in place, be amalgamated to form a single, more substantial pot, unless the member opted out. Without that system, members who change jobs frequently may end up with a large number of very small DC savings pots, unless they proactively decide to amalgamate their savings. Multiple pots may have advantages from a member perspective (for example, members are able to cash out small DC pots from an unlimited number of occupational schemes); but administration and record-keeping costs for these small accounts can be disproportionate from a scheme perspective.

For more information on practical housekeeping points for managing existing small deferred DC pots, and communications issues which could help to avoid new ones being created accidentally, please see our eAlert of 11 September 2015.