Later today I intend to publish the Command Paper: “Automatic transfers: consolidating pension savings” (Cm 8605).
Reform of the UK’s pension system is already well under way. Last year saw the introduction of automatic enrolment, confirmation of our plans to fundamentally reform the state pension, and the publication of our strategy for reinvigorating private pensions.
At the heart of our overall strategy is our commitment to support people in building up a better income for their retirement. At the moment every time a person moves job there is a significant risk that they will leave behind a small pension pot, which may never get consolidated to achieve a decent retirement income. Automatic transfers will help people consolidate their savings so they get a clearer view of how these savings build up over their working lifetime and help to ensure they do not miss out on valuable retirement income. By 2050, we estimate that our proposals would halve the number of dormant pots created by automatic enrolment.
Our consultation document: “Meeting future workplace pension challenges: improving transfers and dealing with small pension pots” (Cm 8184) set out options to create an automatic transfer system to deal with the problem of small pots. In July 2012 the Government response to this consultation (Cm 8402) confirmed this intention, and proposed a “pot follows member” automatic transfer system where broadly speaking, peoples’ pension savings move with them when they move jobs.
Since then we have been taking forward work on how we might design and deliver our policy and have been talking to a wide variety of people, including pension providers, third-party administrators, consumer representatives and employers. We were grateful to hear their views. We have made good progress and this Command Paper will set out in more detail how a system of automatic transfers might work in practice. We intend that a broad framework would be provided for in primary legislation, the detail will be set out in secondary legislation which will, of course, be subject to formal consultation. The relevant primary powers will be created in the forthcoming Pensions Bill.
This paper will also confirm my earlier announcement to withdraw short-service refunds from those in money purchase schemes. I will do this at the earliest opportunity following Royal Assent to the forthcoming Pensions Bill as early as 2014.
We will keep working with interested parties to develop and put in place a viable and cost-effective automatic transfer process for schemes and members.
The Command Paper will be available later today at: www.gov.uk/dwp#consultations.