23 June 2015
Section 32 introduces Schedule 17 which contains a duty for the Department to make regulations to establish a system of automatic transfers of pension benefits.
Paragraph 1 of Schedule 17 outlines this system, setting out that the regulations must provide that where an active member of an ‘automatic transfer scheme’ has ‘transferable benefits’ in another pension scheme (the ‘transferable benefits scheme’), then the automatic transfer process set out in the Schedule must be followed.
The transfer will be from a money purchase scheme or a pension scheme of a prescribed description (sub-paragraph (5)) that the member is no longer contributing to (sub-paragraph (4)(c)), into another money purchase scheme or a pension scheme of a prescribed description (sub-paragraph 2) of which the individual is an active member. This will only apply if certain criteria are met including that the benefits to be transferred have been accruing since a certain date (sub-paragraph (4)(e)) and are worth less than a prescribed amount (sub-paragraph (4)(f)). It is expected that the amount will be initially set at £10,000.
In addition, Schedule 17 sets out that regulations will provide that trustees or managers of ‘automatic transfer schemes’ must find out whether members have transferable benefits in other schemes (paragraph 2). The regulations must make provision about disclosure of information and they may, in particular, permit or require a person to disclose information to another person to help that other person comply with their duties, which will include providing information on an individual’s transferable benefits to any central database (paragraph 9(1) and (2)).
The regulations must also provide that a prescribed person must give information to the member (paragraph 5) and must provide that the member has a right to opt out of the automatic transfer (paragraph 4) unless there is a requirement for consent by the member before the transfer is made. The information provided to members will include details about the automatic transfer, their right to opt out, or need for consent (as applicable), and may contain other information, for example, about the pension scheme.
Where ‘transferable benefits’ are identified and the individual has not opted out, or has provided consent (whichever is applicable), the trustees or managers must notify the ‘transferable benefits scheme’ (paragraph 3), the ‘transferable benefits scheme’ must then transfer those benefits (paragraph 6) and the ‘automatic transfer scheme’ must give the member rights equivalent to those benefits (paragraph 7). Other functions may be required of the trustees or managers of either scheme (paragraph 12), for example, to acknowledge the transfer.
Further to these core features, Schedule 17 sets out a number of areas that regulations may cover. For example, regulations may be made to:
provide for the manner in which cash equivalents are to be calculated and verified by the ‘transferable benefits scheme’ (paragraph 8);
allow for the enforcement of the automatic transfer duties by the Pensions Regulator, including the imposition of compliance notices and penalties for non-compliance (paragraph 10) and record keeping requirements (paragraph 11);
require the Department or the Pensions Regulator to establish and operate a database containing information relating to people who have or have had ‘transferable benefits’ (paragraph 9(3)); or
allow certain provisions within the regulations to override scheme rules (paragraph 16). For example, if scheme rules prevented an automatic transfer scheme from accepting a transfer.
Part 2 provides that regulations may be made to consolidate multiple pots belonging to one member in the same scheme, providing for an asset transfer if necessary, for example, where an individual has two employments over their working life and the employers both use the same multi-employer scheme (paragraph 13).