Government outlines plans to improve pension portability
Tuesday 17 July 2012
The Government outlined plans today to make it easier for people to take their work pension with them when they change jobs.
But fears were raised that the move could create a "pensions lottery", with people unwittingly seeing their pots automatically transferred into better or worse schemes as they follow them through their employment.
The Government believes its "pot follows member" plans could halve the number of dormant pension pots that would have otherwise been created by 2050 by making it easier for people to keep their pots with them.
However, the National Association of Pension Funds (NAPF) warned that if someone with a pension pot of around £10,000 and an annual management charge of 0.5% was moved into a pension with a charge of 0.9% a year, they could lose around £1,500 or 10% of their pot after 25 years.
It suggested that rather than transferring someone's pension pots when they move jobs, a better solution would have been to allow people to move their pensions into centralised low-cost "aggregator" systems.
Joanne Segars, chief executive of the NAPF, said: "While the Government's idea is one way to solve the problem of small pots, it does not tackle the risk that people might see their pension transferred to a worse scheme with higher charges and weaker governance.
"There is a real risk of a pensions lottery where people could be automatically transferred into better or worse schemes without them being aware of the impact ...
"We believe a better solution would be to allow people to transfer their pensions into largescale, low-cost aggregators which are simpler and better placed to deliver good member outcomes."
Unless the current system is changed, some 50 million pension pots could be sitting dormant by 2050, the Government estimates, and more than 12 million of these will be worth less than £2,000.
Under the current system, people need to take more active steps to consolidate their savings, meaning that smaller pension pots can be left stranded with a string of employers. Estimates have already put the total value of unclaimed pensions at around £3 billion.
Concerns have been raised that the number of dormant pots could sharply increase following a landmark scheme to automatically enrol up to 10 million people into workplace pensions from this autumn.
The plans are being put in place amid concerns that as people are living for longer, they are not putting enough cash aside to fund their old age.
Official figures released earlier this year showed that the proportion of people in a workplace pension has fallen below half for the first time in at least 15 years. Just 48% of employees were in a scheme, compared with 55% when the records began in 1997.
As many as one in six people are thought to have no idea where their pension is saved, and moving jobs has been put as the biggest reason for this.
Concerns have been raised that people who cannot consolidate their pension pots may be unable to access more competitive deals as annuity providers tend to require a minimum pot of at least £5,000 or £10,000.
The Government consulted on various approaches and it believes the "pot follows member" system will provide the best value in terms of administrative costs for pension providers, which has the potential to benefit savers in the form of lower charges.
Minister for Pensions Steve Webb said: "Automatic enrolment will help millions of people save into a pension, with a contribution from their employer.
"Our overall goal of getting millions more people saving would be completely undermined if people are let down by a set of rules that mean people lose track of money saved and miss out on vital income in retirement."
Age UK, the TUC and Which? issued a joint statement saying they were "extremely concerned" by the Government's approach to small pension pots.
The groups said they also favoured an "aggregator" approach, where small pots could only be automatically transferred to a limited number of high quality pension schemes which would guarantee low charges, good governance and economies of scale.
The joint statement said: "In our view there are real risks of both consumer detriment and knock-on effects that could seriously hinder the success of automatic enrolment ...
"We strongly welcome the Government's commitment to dealing with small pension pots, and can see the attraction of 'pot follows member' as the simplest way of building 'one big pot'.
"But it seems unlikely that 'pot follows member' can be made to work without a radical transformation of the pensions system."
The bodies warned that the difficulties of dealing with people who move jobs frequently, hold multiple jobs, take career breaks, face unemployment and drop in and out of pensions saving are "severe".
Shadow pensions minister Gregg McClymont said: "Today's announcement is not the best deal for pension savers. Ministers must put the saver's interest at the heart of what they do.
"Steve Webb's proposals on small pots fail this test."
He added: "Right now, a pension saver could lose up to half of their pension thanks to hidden costs and charges in some of the worst cases - the Government's announcement today risks making a bad situation for the saver worse.
"This announcement comes on the same day that the Office for National Statistics reveals a further decline in the number of people saving into pensions."
And why are 'southern' ways of speaking spreading north?
life + styleClarissa Baldwin is the brains behind the slogan 'A Dog is for Life not just for Christmas'
- 1 Is this the scariest advert ever? Japanese tyre commercial comes with its own disclaimer and health warning
- 2 How black gold was hijacked: North sea oil and the betrayal of Scotland
- 3 A forgotten episode in Russian history leaves links with the Philippines
- 4 Scientists sequence oldest human DNA from fossilised leg bone found in Spain
- 5 ‘Put it in my mouth’: Viewers outraged by apparent reference to oral sex in VIP e-cig advert
iJobs Money & Business
£50000 - £65000 per annum + benefits + bonus: Harrington Starr: Market Data SM...
£50000 - £70000 per annum + benefits + bonus: Harrington Starr: Business Analy...
£70000 - £85000 per annum + benefits + bonus: Harrington Starr: Business Analy...
£75000 - £85000 per annum + Bonus and Benefits: Harrington Starr: An award win...
Day In a Page
A spacious Grade II-listed family home with annexe and equestrian facilities among four acres of land in Itchingfield
A four-bedroom home with exposed brick walls and open fires in the picturesque village of Northill
A Grade II-listed property with five bedrooms and unique tower, overlooking Hastings Old Town
A charming five-bedroom detached family home, set within half an acre in Kew
A two-bedroom maisonette set on the top two floors of a period building, close to Kentish Town Tube.
Take advantage of the extra space provided by former stables and outbuildings at this five-bedroom farmhouse.
This three-bedroom Victorian terrace is near to Queen’s Road Peckham station, Nunhead station.
A five-bedroom modern house with terrace, swimming pool, Zen treehouse and large carp pond
An unexpected gem with four bedrooms, remarkable vaulted reception and a galleried study area
A five-bedroom house in one of Lymington's most sought after tree lined avenues, moments from the marinas and sailing clubs
A grand early 19th century B&B close to the historic harbour, with four en suite bedrooms
A four-bedroom, 17th century home with walled gardens, a landscaped terrace, cellar and open fires
A six-bedroom house with five bathrooms and four reception rooms spread over 4,000sq ft of luxury living space
A stunning three double-bedroom apartment with two decked terraces in the exclusive gated community, Bromyard House
A 10-bedroom period, family home amid beautiful surroundings in the centre of the Wentworth Estate in Longcross village
A stylish three-bedroom apartment with two bathrooms and private landscaped garden, moments from Fitzroy Square
A Grade II-listed Elizabethan barn with landscaped gardens, exposed elm beams and four bedrooms, all with lovely views
A six-bedroom family home, dating back to 1280 with four reception rooms, barn, swimming pool and tennis courts in Harwell
A spacious two-bedroom flat, refurbished to a very high standard with private landscaped garden, close to Kentish Town station
An exceptional two-bedroom apartment with balcony and underground parking in the centre of Richmond
A one-bedroom, luxury, duplex apartment in the grand landmark building, Imperial Hall
Run a fabulous boutique shop, live above it in a one-bedroom flat and let a second one-bedroom flat that comes part and parcel
A Grade-II listed, thatched cottage in Hundleby village, with five bedrooms, a coach house and three and a half acres
A spacious two-bedroom flat in the heart of Hoxton Square with wooden floors and roof terrace
A five-bedroom family home with stunning pool and gym complex set among two acres of land
A six-bedroom period house with heated swimming pool and a separate two-bedroom annexe cottage in Townlake, £795,000
A spacious and contemporary two-bedroom flat arranged over three floors, with garden patio close to St George Square, £600,000
A one-bedroom flat in a beautiful Regency building opposite the beach in Kemp Town, £190,000
A two-bedroom flat with London skyline views close to Surrey Quays. £395,000.
A seven-storey tower with three bedrooms and a stunning roof terrace. Guide price: £850,000.
A 16-bedroom country pile with nine reception rooms, four self-contained flats and a 13th century Peel Tower. £850,000.
A classic six-bedroom Victorian Manse house 10 miles from Edinburgh. £495,000.
John Lennon's childhood home in Liverpool to be sold at auction. Guide price: £150,000-£250,000.
A six-bedroom detached period property with secluded gardens, ample parking and a double garage in Rye, £675,000.
A large split-level property with three double-bedrooms and roof terrace, close to Crouch End Broadway, £625,000.
A charming barn conversion in the picturesque Cotswold village of Ilmington with three bedrooms, a detached garage, workshop and beautifully manicured gardens £675,000.
A three-bedroom new build, ground-floor flat with two bathrooms, close to Bermondsey tube, £445,000.
A three-bedroom house in an enviable new development moments from Oxshott High Street, with secluded garden and decked area, £385,000
A two-bedroom split-level flat with stunning south-west facing roof terrace in the popular Brondesbury Conservation Area, £549,950.
A charming 16th century, three-bedroom detached house in Bidborough with picturesque garden
A top-floor one-bedroom flat in the heart of Pimlico with a terrace providing spectacular views over London, £495,000.