Webb: Why a soft launch is right for automatic transfers

But one of several items of unfinished business was the risk that with regular job changes, auto-enrolment would generate millions of small, stranded pension pots, cluttering up the pensions landscape and delivering little value to individual savers.  

Indeed, without action it is estimated we could have built up around 50m such pots by the middle of this century. This is where the programme of automatic transfers and pot-follows-member will prove to be an essential initiative. 

Some have suggested that a better approach would have been to move small pots off to one of a number of supertrusts – a home of lost pots, as it were.  

But under pot-follows-member, your active pension pot with your current employer is the one that holds your accumulated pension. 

This new proactive approach to communication with pension savers – and searching for their dormant pots automatically – may well encourage member engagement in pensions

This means that you are very interested in what your current scheme and your current employer has to say about your pension.  

We have engaged with a wide section of the industry to analyse PFM and our preferred model is an industry-led federated model rather than a centralised database.

I envisage a competitive market growing with organisations offering automatic pot-matching and automatic pot transfer. 

There is clearly still work to be done, especially on how to reduce transfer costs and ensure strong data-keeping. But Isa transfers have shown us what is possible and what we can build on.

A phased approach

I want to introduce PFM as soon as possible, while giving sufficient time for the industry to develop the new systems required.     

We think an incremental approach is the best, so that we can iron out any issues in pot-flagging, pot-matching and transfers before we move to full coverage of all schemes and an opt-out default position. 

In this approach, automatic transfers will first apply to a limited number of schemes – although the nature of the pensions market means they would still cover the vast majority of members.  

The first stage of implementing PFM will be to introduce automatic matching of an individual’s small pots. The individual will be contacted to confirm if they want these pots to be moved to their new scheme – an opt-in basis as a staging post to the full opt-out model. 

This new proactive approach to communication with pension savers, and searching for their dormant pots automatically, may well encourage member engagement in pensions. 

The system will then transition to the opt-out model. Our goal is for the automatic pot-matching system to be in place by Autumn 2016.

We aim to publish an update document containing further information about the implementation model and timetable next month ahead of consulting on draft regulations. 

Steve Webb is the UK pensions minister