The Government has announced plans to help millions of savers take their workplace pension with them when they change job.
Automatic enrolment means that by 2018 all employers will need to offer a workplace pension but more savers means more dormant small pension pots. When people move job these pots could be stranded or lost completely over time.
The Department for Work and Pensions has estimated that people on average have eleven jobs over the course of their working lives. By 2050 this will result in around 50 million dormant pension pots.
The “pot follows member” system will mean that over someone’s working life any pots accrued of less than £10,000 will automatically move with them.
Introducing automatic transfers is projected to reduce the proportion of people reaching retirement with five or more dormant pots from a quarter to one in thirty.
The proposal will be included in the forthcoming Pensions Bill.
Minister for Pensions Steve Webb 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.
Initially transfers will only be for money purchase schemes. Those in defined benefit occupational pension schemes will not be included at this stage.
Pension scheme providers and administrators will operate the transfer but individuals will be provided with information and have the right to opt out of the process. The Department is working closely with industry to develop detailed options for how the process will work.
The Government also confirmed plans to make sure that money put into pension saving stays in, with the abolition of short service refunds. This will apply to those individuals leaving a trust-based money purchase scheme within two years. This will come into force following Royal Assent of the Pensions Bill.
