Ministerial evidence to DWP Select Committee confirms change in short-term plans. Partial coverage and ‘opt-in’ rather than ‘opt-out’ at outset; Potential to create a scheme register to help combat pension fraud; Long term plan unchanged.

Giving evidence to the DWP Select Committee yesterday (12/01/2015), Pensions Minister Steve Webb confirmed a short-term rethink in the roll-out of the Pot Follows Member project. At the outset, the default will be for relevant individuals to be given the choice to opt-in to an automatic transfer. This is instead of the original (and still the long term) plan that relevant pension pots will be automatically transferred unless the individual exercises their right to opt out. Initial roll-out will also be based on partial coverage of the universe of pension schemes, rather than all pensions. This is expected to make it easier to ensure that all participating pensions can deal with the administrative requirements of auto-transfers and to get the system up and running. In time, once the system is working, it should then be possible to extend it to all pensions and to switch to an opt-out basis.

Tom McPhail, Head of Pensions Research, Hargreaves Lansdown: ‘The potential benefits from this project are very substantial, so the DWP should be applauded for taking pragmatic decisions to make sure it works. Not only could it deliver billions of pounds in administrative cost savings, it could also help to combat pension fraud. It will make sense to exclude pension savers who are actively interested in their retirement savings but for the disengaged savers, auto-transfers will be a vital development.’ The auto-transfers project has been created to sweep up the small dormant pension pots likely to be created following job changes by employees in an auto-enrolment world. The DWP has previously projected that without a policy solution, auto-enrolment could create 50 million dormant pots by 2050.

Auto-transfers will potentially create a register of all approved workplace pension schemes. This could help to combat pension fraud because fraudsters typically do not like to submit to stringent vetting processes. More detailed plans will be published by the DWP in February 2015.