Pension savings could be automatically made to follow employees from job to job in a bid to address the problem of small pots says pension minister Steve Webb.
An automatic transfer system that moves employees’ assets with them is one of the options that will be considered in a consultation on small pots to be launched by the DWP later this year. Webb is set to consult on this and less radical options, which include making the existing transfer process more straightforward.
Webb is concerned that millions of people are building up small pension pots that could be lost or forgotten about due to complexities in the current system.
Speaking to the Personal Financial Society in Birmingham today, Webb highlighted the fact that currently it is up to an individual to sort out transferring their pension from one scheme to the next and pension schemes can make a decision to accept the transfer or not. Some pension schemes impose a minimum transfer amount or only accept transfer where individuals have taken financial advice. For low earners with small pension pots, these barriers often mean that they can’t transfer their pension, going through their career with many small pots that don’t amount to a significant amount for their retirement, he said.
Currently around 50,000 new small pension pots are created a year. Under automatic enrolment this number is predicted to rise to at least 200,000 a year. The Unclaimed Assets Register says the amount of unclaimed pension assets stands in excess of £3bn. The Pensions Tracing Service is approached by 70,000 people a year for help finding missing pension pots.
“With the average person working for eleven different employers over the span of their career it’s vital we make sure that we remove barriers and make it as easy as possible for people to grow big fat pension pots.
“Millions of people are set to be enrolled into workplace pensions beginning next year, and we estimate that at least 200,000 small pension pots will be created each year. I am concerned that people are at risk of losing these small pots as they move from job to job. I do not want to see people who are doing the right thing by saving, getting stymied by a complicated system and ending up with very little for their retirement.
“I will be consulting later this year on options to tackle this problem ranging from simply making the existing voluntary transfer process more straightforward, to introducing an automatic transfer system where pension pots follow people from job to job. I am determined to get this right and will be working with industry on the best course of action.”