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

1. ViaNova Seminar 2 October ViaNova seminar: finding the right solution for “Pot Follows Member”

2. 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 Chart 1: Number of dormant pension pots

3. Pot Follows Member – what’s in the Pensions Bill Pension Bill clause and schedule • establish the principle of PFM • 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

4. 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 whetherto 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.

5. How can we make PFM work? • 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.) Consumer enquiry facility Provider 2 Pot 2 Provider1 Pot 1 Data matching “wltm” Physical transfer Employer 1 Employer 2 Individual receives info regarding opt-out from provider 2.

6. 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 Could secure messaging instead of PTID allow a “locate/search” exchange of information between providers? Pot 1 Pot 2 Provider1 Physical transfer Provider 2 Provider 2 initiates transfer if individual doesn’t opt out Employer 1 Employer 2 PTID PTID includes summary data of existing pot, and goes via employer to individual and then to the new employer/new scheme

7. 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