Short service refunds banned and consultation on small pots launched
Short service refunds are to be abolished and changes will be made to how small pots are dealt with, under a consultation launched by the Department for Work and Pensions today.
Pensions minister Steve Webb says the move to abolish short service refunds for DC occupational schemes has been made to protect the pension pots of people who move jobs often.
The DWP says dealing with the issue of small pots will go some way towards reducing the administrative burden of staff with short service on schemes.
The small pots consultation has also been prompted by the introduction of automatic enrolment, which the DWP says will lead to around 4.7 million additional small pension pots in our pensions system by 2050.
Options in the small pots consultation range from small changes to encourage transfers to an automatic transfer system where pension pots could either be consolidated in one or more ‘aggregator’ schemes or move with people from job to job.
Webb says: “I want to ensure that as people move jobs, their money stays in pensions. Taking the money out goes against our overall goal of getting millions more people saving.”
“I am concerned that people are at risk of losing their small pension pots as they move from job to job. I do not want to see people who are doing the right thing by saving, ending up with very little for their retirement because the system is too complicated. I want to make it as easy as possible for people to grow big fat pension pots.
“With the average person working for eleven different employers over the span of their career it’s vitally important that barriers are removed to growing big fat pension pots.”
Maggie Craig, director of financial conduct regulation, ABI says: “The ABI agrees with the Government that we need to make it easier for people to amalgamate their small pension pots. Having fewer, larger pots will make it easier for people to engage with their saving; helping them keep track of their pension pots and work towards a good retirement income. As auto-enrolment is likely to increase the number of small pots enormously, we strongly welcome this consultation and look forward to working with the Government and the industry in building an effective system that helps people save for their retirement.”