Last summer, debates about "pot follows member" were all the rage. Now there is nothing but an unnerving silence. Is it still on the cards; or, as has been mooted, is this particular pot following nobody, anywhere?

"Pot follows member" is alive and kicking. You just wouldn't know if from looking at the newspapers. Once the doyenne of the trade press, she seems to have become an out-of-favour recluse. But appearances can be deceptive, and if you scratch the surface it will become apparent that we are still full steam ahead with this integral part of the Government's drive to encourage viable workplace saving through its auto-enrolment initiative.

Background

The concept of automatic transfers of small DC pots was introduced by the Pensions Act 2014, a year after the Government had first announced its ambitious plans to ensure that benefits were transferred to a new employer's pension scheme whenever a member changed jobs. "Stranded pots", went the mantra, would become a thing of the past. As with all good pensions legislation, however, the detail was left to regulations; and for those regulations, we are still waiting.

Basic principles

In essence, "pot follows member" is extremely simple: if you join a new scheme which qualifies as an "automatic transfer scheme", and have "transferable benefits" left behind in another scheme, then those benefits will follow you to that new scheme. In practice, it is likely to be less so. But a brief reminder about the headline characteristics of the new regime is still worthwhile:

  • "Pot follows member" will only apply to pots of less than a certain value: likely to be £10,000 or thereabouts.
  • The transferring scheme, the receiving scheme and the benefits that have accrued must all be money purchase: there is no room at this particular inn for anything that is DB in nature.
  • It will be the receiving scheme that is obliged to find out whether its new member has "transferable benefits" in an old scheme, and to then take steps to ensure they are transferred across.
  • Certain provisions of the new regime are likely to override scheme rules (such as any provision which would otherwise prevent the receiving scheme from accepting a transfer payment).
  • Individuals will be able to opt-out of the system if they so wish.
  • Governance standards currently applying to DC schemes will be widened in scope, to minimise the risk of small pots being automatically transferred from schemes with good governance and low charges, to those with less good governance and higher charges.

So what's going on at the moment?

Quite a lot, actually. One would never want to suggest that Steve Webb is out to make a mark for himself. (That would surely be the pot calling the kettle black.) But he has still been rather active of late, despite the smokescreen of DC flexibilities and the advice / guidance debate.

Most recently the indefatigable Pensions Minister has been giving evidence to the House of Commons Select Committee on work and pensions. It is said that the DWP is expected to publish its implementation plans for "pot follows member" during the course of the next few weeks. It is hoped to enlist the UK's 20 largest pension providers to become involved with the new system.

Crucial to the smooth operation of this new regime will be a system of industry registries containing individuals' pension details. The need for sound data protection measures will be a given. Initially the system will work on an opt-in basis (there has been a change of heart by Government here), although in time it is intended to be automatic unless individuals opt out. Implementation is anticipated to be during Q4 2016: in reality, not very far away.

Wedlake Bell comment

A lot remains to be done between now and then. We nonetheless welcome this initiative and hope it will succeed. It will be further 'grist to the mill' to the Government's meritorious objectives of encouraging everyone to save for their retirement via a workplace pension. It will undoubtedly start generating higher levels of interest as time marches on. Most immediately, the promised "further details" of the Government's implementation plans are awaited with interest.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.