The UK government has finalised its plan for setting up an automatic transfer system for defined contribution (DC) pension pots built up during auto-enrolment.

The so-called ‘pot-follows-member’ system will be implemented by October 2016 after legislation permitting its set-up passed last year.

A paper from the Department for Work and Pensions (DWP) said it had opted for a ‘Federated Model’, with DC pots worth less than £10,000 automatically following a saver from one scheme to another as they change employer.

The paper also said the system would only apply to savers within default investment funds, as any active engagement from a member would make them ineligible for automatic transfers.

The Federated Model will consist of a network of registers holding information on all DC pots available for a transfer, the government said, which reduced concerns over a single point of system failure and issues arising by forcing pension schemes to communicate with one another.

It will be implemented in two stages beginning next year, with solely auto-enrolment savings in default arrangements and members ‘opting-in’ to the new automated system – while its structure and integrity is tested.

A second phase will then switch to an opt-out system, meaning all pots will be automatically transferred in the absence of member engagement.

The DWP said it would consider expanding the policy to savings outside of default investment funds and larger pots but not until technological advancements had been made.

Pensions minister Steve Webb said there could be 50m dormant pension pots without government intervention in the market.

“I want to introduce pot follows member as soon as possible so we don’t lose the momentum that automatic enrolment has delivered in turning around pension saving,” he said.

Elsewhere, The Pensions Regulator (TPR) has launched a new package of measures to assist trustees of UK schemes with changes coming into force in April.

Later this year, the new pensions freedoms will become available for DC members, allowing them to access their savings without having to purchase an annuity, likely to result in uncertainty over retirement products and transfer requests from defined benefit (DB) members.

The regulator is to begin consulting on new guidance for DB trustees on managing member transfer requests, with the Brighton-based body accepting feedback until 17 March.

It has also created an ‘essential guide’ for DC schemes about the new rules regarding pensions freedoms, new governance requirements for insurance-based schemes and a 75 basis point charge cap for auto-enrolment default investment funds – also coming into force in April.

There are additional communication materials for scheme managers and trustees to educate members over the risk of pension and investment scams.

Stephen Soper, TPR’s interim chief executive, said: “The pensions system is undergoing one of the biggest shake-ups in generations.

“As well as our own material, we’re working with the DWP, Treasury, FCA, Money Advice Service, Pensions Advisory Service and others to make sure a suite of information about the new pensions flexibilities is available, and we will signpost trustees and managers to this as it develops.”