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17th June 2013

Automatic Transfers

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The legal framework for introducing a system to automatically transfer members’ small defined contribution pots to their new employers’ pension scheme when they change employment has been included in the Pensions Bill 2013. The system will be set out in regulations to be published later this year.

Who will the automatic transfer system apply to?

Initially, the system will only apply to workers who are active members of a defined contribution pension scheme and who have a pot size of £10,000 or less (the pot size to which the system applies will be reviewed every five years) where both the member and the employer have stopped paying contributions. A requirement that the member is no longer working for the employer may also be introduced.

Only pots which first began to be built up after a certain (currently unspecified) date will be transferred at first. Pots that began to build up before that date may be included at a later date, possibly on a staged basis. However, the process for identifying eligible pots and making automatic transfer has not yet been decided on by the Department for Work and Pensions (“DWP”). Automatic transfer between other types of scheme may also be allowed in the future.

Will members be able to opt-out?

Yes. Members will have the right to opt out within a prescribed period. Schemes or employers will be required to provide certain information to members about the effect of automatic transfers and their right to opt-out. The form and content of the opt-out notice, the person to whom it must be given and the action that person must take on receiving it will be set out in regulations.

Who will oversee the system?

According to the DWP, the Pensions Regulator (“TPR”) will oversee "a light touch, proportionate compliance regime" for automatic transfers. TPR will be able to issue compliance notices to schemes and to third-party administrators and to impose fixed penalties for failing to comply with a compliance notice or contravening certain automatic transfer requirements. The Pensions Ombudsman will also deal with individual complaints on a case-by-case basis. We will keep you up to date with any changes to and progress in implementing the new automatic transfer system. The system is not likely to come into force until after legislation abolishing short service refunds from defined contribution schemes has been introduced in 2014.

If you would like further information please contact Christopher Nuttall on 01604 233233 or click here to email Christopher.