Pension funds have warned that a Government announcement today to automatically transfer pension pots when a worker moves jobs would put savers at risk.
Darren Philp, Policy Director, National Association of Pension Funds, said:
“This approach could put workers' savings at risk.
“We are concerned that a worker’s pension could be automatically shunted from an excellent pension into a bad one with high charges. The Government now recognises this, but we cannot be sure there will be strong safeguards in place.
“A better solution would be to automatically transfer these small pension pots into a small number of large-scale, low-cost pension schemes. This would also remove the bureaucracy and expense that pension schemes will face when trying to ensure that a pot follows a worker automatically.
“It is odd that the government is stopping pension schemes refunding pension contributions for short spells of employment before it has a clear policy on small pot transfers in place. This risks creating a whole new generation of dormant small pots.
“The Government says it is trying to cut red tape for businesses, but these proposals would introduce new costs for pension schemes and employers.
“Before taking broad legislative powers in this area, the Government needs to spend more time thinking of a workable, cost-efficient and consumer-friendly solution to this problem, and it should also run a full impact assessment.”
Last October the NAPF warned that a ‘pot follows member’ approach could erode a person’s pension savings by up to 25%. It calculated that a person on half-average earnings who saves for 45 years would have a pension £82,000 in an ‘aggregator scheme’. However, this would fall to as little as £61,000 in a ‘pot follows member’ scheme due to high fees and variable investment returns.
The Department for Work and Pensions today published more detail in a Command Paper on its plans to tackle the issue of small pension pots by having a pot automatically follow a worker to their new workplace pension when they change jobs.
Notes to editors:
1. The NAPF is the leading voice of workplace pensions in the UK. We speak for 1,300 pension schemes with some 16 million members and assets of around £900 billion. NAPF members also include over 400 businesses providing essential services to the pensions sector.
Paul Platt, Head of Media and PR, NAPF, 020 7601 1717 or 07917 506 683, [email protected]