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New scheme will see your pension move with your job

The government plans to allow people to move their pension from job to job, reducing the amout of cash left stranded in small pots.


by Michelle McGagh on Jul 17, 2012 at 11:34

New scheme will see your pension move with your job

The Department for Work and Pensions (DWP) has announced that employees will be able to take their pension pots with them when they change jobs as part of ‘operation big, fat pension pot’.

The phrase ‘big, fat pension pot’ was coined by pensions minister Steve Webb last year, as he explained his plan to reduce the number of small, dormant pots and help people build one substantial pension pot. There is concern about the number of pension pots that are lying inactive or are lost completely when people move employer – a pressing concern given that the average person now moves jobs 11 times in their lifetime.

Following on from a consultation on small pots, the DWP has now announced it will implement a ‘pot follows member’ system to solve the problem.

Stranded pension pots

‘Current rules make it difficult for people to combine their pension pots as they move jobs, leaving money stranded or lost completely. Without action 50 million pension pots could sit dormant by 2050,' Webb said.

‘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.’

He added that the government’s goal of getting more people saving for retirement would be ‘completely undermined’ if people were not able to keep track of the money they have saved.

The DWP consulted on two other plans for small pots, including automatic transfers to the government-backed pension scheme, the National Employment Savings Trust (Nest), and speeding up the current process for voluntary transfers.

Portability wins public approval

However, consumer research by the Association of British Insurers (ABI) showed the most popular choice was a pension pot that could be moved from job to job.

‘Our consumer research tells us emphatically that people want to be able to take their pension pots with them as they move jobs,’ said Otto Thoresen, director general of the ABI.

‘We are pleased that the government, after considering all the issues, has announced its intention to develop a "small pot follows member" design. This will reduce the number of lost or stranded pots and give people greater choice as they will have a larger pot when buying a retirement income.’

The government is also hoping that the small pots solution will reduce costs for the pensions industry, which will result in lower costs for consumers.

9 comments so far. Why not have your say?

Chris Sullivan

Jul 17, 2012 at 12:27

Yes I put all my pensions (first 20yrs of work) in one final salary scheme "pot" and left it deferred in their safe hands since 1996. When I left it was forecast to bring me £24k/year in 2024, now its forecast to bring £12k.yr and has been revalued back to 1996 using CPI instead of RPI. Is that legal??

One pot could be one big disaster, I prefer to have several pots and work on the law of averages that not all will screw up simultaneously - its called spreading your risk.

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Jul 17, 2012 at 12:35

Chris Sullivan, I thought they could only change it to CPI from when the rule came in a year or so ago. I don;t think they should be able to back date the CPI change.

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Chris Sullivan

Jul 17, 2012 at 12:43

I hope you are right. I am having it checked by legal people, I accidentally found out the legal checkers also do work for the company the deferred pension is with though....hmmm.

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Paul 2

Jul 17, 2012 at 12:43

This could be a great idea that doesn't work. Politicians often are no good at spotting the flaws in their pet projects.

Will a new employer be obliged to pay in to the travelling pot, for example? If they are, then will a prospective employer simply not employ someone who brings too much pension baggage with them?

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Jul 17, 2012 at 12:56

I've combined my various pots into a SIPP - it's not exactly difficult. However, my employer won't pay into this SIPP, and I fully understand why as it would be an admin nightmare. Instead they pay into a group personal pension, which I can move across as and when, or just leave as a separate pot.

If people lose track of pension pots, well I guess that just shows that we all have different attitudes to money.

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Michael Stevens

Jul 17, 2012 at 14:20

It is a very idear to move pots under £10,000 and keep perhaps in two or three pots. Personal Pensions are a simple way forward.

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Jul 26, 2012 at 09:38

The fact that it can be moved from one employer to another does not mean that it will buy a big fat annuity.

I would also like to know the answer to Paul 2's question in his second paragraph above.

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Jul 26, 2012 at 09:47

How big the pot gets is a function of what goes in and the investment performance minus fees. Most people put in too little and don't keep an eye on fees. Some people also don't know how to construct a portfolio that's appropriate for their age and goals.

As for employer's contributing, the rules are changing on this, but I haven't paid much attention.

Quite why previous pots should be seen as baggage I really don't know. Perhaps Paul2 can explain what he meant?

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Paul 2

Jul 27, 2012 at 12:56

@ sgjhaghsdg

Employers will go to some lengths to hire the individuals they want when appointments are being made at senior level. The same does not apply at middle management and more junior staff levels.

Thus, when a senior level hiring is being done, other senor level staff may take the time to see if the potential new colleague's existing pension arrangements can be accommodated in some way, such as by the new employer paying into the existing policies of the potential new hire. They will not take this trouble with people who will be joining further down the company hierarchy (hirearchy, to invent a word) unless it is already company policy that they should take this trouble.

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