Transfer industry outlines pot-follows-member approach

The government is reviewing transfer systems that include Origo Options and the Tax Incentivised Savings Association’s Exchange, pensions minister Steve Webb told the Work and Pensions Committee last week.

Broad-based primary legislation is currently passing through the House of Commons, which will be followed by secondary legislation that more clearly defines responsibility for assigning and transferring pots, he said.

“We’ve been looking at industry initiatives that make moving money around the place easier, and there a couple of different variations on this,” said Webb. “One is something called Origo Options, a system really based on moving money around.”

Origo performs annuity transfers as well as pension-to-pension transfers, handling £12bn in 2012, according to managing director Paul Pettitt.

This process used to take on average 50 working days, but through Origo Options takes 10 calendar days. The cost of a transfer is typically less than £10.

“Something like 20-odd per cent of transfers through Options are below £10,000 already, so they would fit into the small pot definition that [the Department for Work and Pensions] have produced, so we can do small pot transfers already,” said Pettitt.

He added the company had been talking with the DWP about problems, such as the regulatory framework, security, due diligence and what records can be accessed.

The TISA process

TISA Exchange provides a central contract for all members that covers the liability and indemnity issues that arise out of electronic transfers, as well as providing a legal framework.

The company is in the process of developing the capability to handle pension transfers and this will be operational before the end of the year.

“It provides that common level service agreement as well, so everyone who signs up to the contract is working in an open, transparent framework; everybody’s working by the same rules with regard [to] all those aspects,” said Carol Knight, director at TISA Exchange.

There is a joining fee of £12,000 per company, an annual fee of £2,000 or £3,000 depending on the type of business you operate and a fee for each electronic message. Fees for pension transfers will be set at a similar level.

Knight said TISA Exchange has not launched pensions transfer yet because the debate over tackling pensions liberation fraud is still ongoing.

"That is one of the processes that will be made very clear as to what TISA Exchange does and companies will have to retain some responsibility of course," Knight said.

However some schemes have expressed concerns over the costs of transfers, which could be passed onto members. The People’s Pension has accumulated around 10,000 stray pots over the course of one year, with an average value of £14.

Darren Philp, head of policy at The People’s Pension, said the cost of transferring pots with values of £14 does not stack up economically against the value members get from such small pots.

“We are a low-cost model and we want to give value to more members and if [we’re] having to do pot-follows-member, [there are] costs that adds to the cost that are passed onto members,” Philp said.