Easier moved pensions plan outlined
The Government has outlined plans 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."
Age UK, the TUC and Which? issued a joint statement saying they were "extremely concerned" by the Government's approach. They favour 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.
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.
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."
Age UK, the TUC and Which? issued a joint statement saying they were "extremely concerned" by the Government's approach. They favour 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.
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.
© 2013 Press Association