Small pension pots to follow members from job to job

The Momentum UK Team 18 July 2012

The government has announced plans designed to help prevent pension savers losing track of small pension pots built up over a career spent in more than one job.

The plans involve a system in which small pension pots will follow members from job to job across the course of their working life.

Under current pension rules it can be a complex process to track down and combine more than one pension pot when reaching retirement age, with valuable funds often lost along the way.

The Department for Work and Pensions said that the plans could halve the number of pension funds expected to lie dormant by 2050, currently 50 million.

Steve Webb, Minister for Pensions, said:

"We need a system where people build up worthwhile pension pots in one place rather than having lots of small pots all over the place. But at the moment every time someone moves to a new job there is a risk that they leave behind a small pension pot which they lose track of. Our plans will mean that individuals get better value for their savings and bigger pensions as a result.

"Automatic enrolment will help millions of people save into a pension, with a contribution from their employer. Our overall goal of getting millions more people saving would be completely undermined if people are let down by a set of rules that mean people lose track of money saved and miss out on vital income in retirement."

However, the National Association of Pension Funds (NAPF) warned that Pension savers could face higher annual management charges on their funds as a result of such plans.

Joanne Segars, Chief Executive of NAPF, said:

“While the Government’s idea is one way to solve the problem of small pots, it does not tackle the risk that people might see their pension transferred to a worse scheme with higher charges and weaker governance. There is a real risk of a pensions lottery where people could be automatically transferred into better or worse schemes without them being aware of the impact. It will be interesting to see how the DWP’s plans will ensure better outcomes for members.

“We believe a better solution would be to allow people to transfer their pensions into large-scale, low-cost aggregators which are simpler and better placed to deliver good member outcomes. We urge the Government to reconsider its preference for 'pot follows member'.”