ViaNova Seminar

2 October

ViaNova seminar: finding the right solution for “Pot Follows Member”

Operation “Big Fat Pot” – why do we need it?

– Employers choose their workplace pension scheme for automatic enrolment – 6 to 9 million individuals newly saving, or saving more – But as people move jobs on average 11 times during working life, we calculate there

will be up to 50 million dormant pots by 2050

‘Small’ pension pots:– Inefficient for individuals

• also risk of lost pots– Unprofitable for providers

Automatic Transfers will: – Minimise numbers of lost/stranded pots– Deliver £6.4bn in savings to the industry by 2050

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Chart 1: Number of dormant pension pots

Pot Follows Member – what’s in the Pensions Bill

Pension Bill clause and schedule

1) establish the principle of PFM

2) provide regulatory-making powers to determine:

– What is an eligible pot– How transfers are valued– Who is responsible for identifying and moving eligible pots– Information to be provided to the individual – and the individual’s right to opt-out

– An appropriate compliance regime– Quality standards for receiving schemes– Possible mechanism for pot matching

Pension bill – some details

– Broadly speaking PFM will apply to money purchase schemes only though we can extend or narrow this scope - eg to exclude schemes with guarantees

– We will set a pot size limit of £10,000 in regulations - there is scope for this to be reviewed at least every 5 years

– The system will be managed by pension schemes not employers. There is provision for a series of duties to be placed upon schemes to ensure they transfer dormant pots. The duties will apply where the individual is in a workplace pension scheme under Automatic Enrolment.

– The system will ensure individuals receive information on how automatic transfers will impact them – which will help them decide whether to allow the transfer or opt out

– There will be a light-touch, proportionate compliance regime to be managed by tPR

– There is power for some minimum essential quality standards to be applied to schemes. This includes the power to limit or ban particular types of charge.

– A statutory discharge from any further liability to provide benefits if the ‘ceding scheme’ takes the steps prescribed in regulations correctly.

• The legislation is flexible allowing us to define the detail later. The Bill does not describe how we will implement the system and we have not committed yet to a specific model or timetable.

• Conceptually – leaving aside the opt-out process – there are 2 components: pot matching and transfer. (A consumer interrogation function could be added in but isn’t essential.)

Physical transfer

Data matching “wltm”Pot 1

Pot 2Provider 2Provider1

Employer 2Employer 1

Consumer enquiry facility

Individual receives info regarding opt-out from provider 2.

How can we make PFM work?

How can we make PFM work?

• PTID means no central pot-matching; but a secure messaging system might also mean no need for a central database

Physical transferPot 1 Pot 2

Provider 2Provider1

Employer 2Employer 1Provider 2 initiates transfer if individual doesn’t opt out

PTID includes summary data of existing pot, and goes via employer to individual and then to the new employer/new scheme

PTID

Could secure messaging instead of PTID allow a “locate/search” exchange of

information between providers?

PFM – issues and the challenge for you

– The challenges have a familiar ring

• Accuracy…. Security….. Minimising friction and cost

– However we implement PFM, the solution must work cross-industry

– We need your engagement – so please talk to us

https://www.gov.uk/government/publications/automatic-transfers-consolidating-pension-savings