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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
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.
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