Personal PensionApr 23 2013

DWP outlines plans to auto-transfer sub-£10k pension pots

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The Department for Work and Pensions plans to introduce automatic transfers of small workplace pension pots of less than £10,000 when members move jobs as it unveils its long-awaited plans for a ‘pot follows member’ scheme to augment its auto-enrolment roll-out.

The scheme would involve any workplace pension pot of less than £10,000 automatically moving with the member when they move jobs. Pension scheme providers and administrators will operate the transfer but individuals will be provided with information and have the right to opt out.

Initially transfers will only be for defined contribution pension schemes, with savers in defined benefit schemes not be included in current plans.

The DWP said it was working closely with pensions industry to develop detailed options for how the process will work.

Steve Webb, the minister for pensions, said: “Instead of having lots of small pension pots all over the place, we want people to have a ’big fat pot’ which will buy them a better pension.

“When people change job, they often leave behind a pension pot which becomes forgotten and which can even attract higher charges once they leave the firm.”

“We want to make it the norm that when you move job your pension rights can move with you if you wish. This will reduce the costs of providing pensions and will help people to be much more engaged with their pension savings.”

The DWP estimates that on the understanding that people have an average of 11 jobs over the course of their working lives, once automatic-enrolment has taken hold there would be roughly 50 million dormant pension pots in the UK by 2050.

Introducing automatic transfers would reduce the proportion of people reaching retirement with five or more dormant pots from a quarter to one in 30, according to the DWP.

The move was met with some disappointment by consumer organisations, with Richard Lloyd, executive director of consumer organisation Which? saying: “It’s vital that people get the most out of every penny they save for retirement so we are disappointed the government is pressing ahead with the ‘pot follows member’ approach which could mean small pension pots end up in poor value schemes.

“The government should set clear quality standards for workplace pension schemes and protect savers from excessive fees.”

The government also confirmed plans abolish short service refunds to ensure money put into pension saving stays put and said it would apply to those individuals leaving a trust-based money purchase scheme within two years and will come into force following royal assent of the pensions bill.