The growing number of people with multiple small pension pots has been an issue for too long.
The Government itself has calculated there will be an additional 4.7 million more small pension pots in the years to come as a result of the introduction of auto-enrolment, government moves to extend working lives and increasing job mobility.
So, Pensions Minister Steve Webb’s announcement that he has launched a consultation to simplify the system and make it easier to amalgamate small pots is excellent news. For millions of people with modest pensions accumulated over their lifetimes, the right changes to this currently restrictive and overly complex system could mean a simpler and more cost-effective introduction to retirement.
Age UK has been lobbying for some time for the Government to recognise the difficulties facing these pension savers.
In particular, we’ve been calling for the ban on transfers into the National Employment Savings Trust to be lifted so that people leaving an employer can be encouraged to transfer their pension savings and can hold them in one single lifetime account with low charges. This needs to be introduced as early as possible and well before 2017 when a review of the ban on transfers is currently expected.
As part of the general shift from defined benefit to defined contribution pensions, there will be many people coming up to retirement with small pots in the next few years, and public attitudes towards pensions will be damaged if they find it difficult and complex to access their savings.
The Government took the first step in overhauling its pensions legislation in the autumn statement when it announced that, from April 2012, savings under £2,000 in a maximum of two personal pensions can be paid out in cash. This reform has been on the cards for some time so we’re pleased that it is finally being implemented.
Let’s hope that Steve Webb’s announcement heralds the next big step in transforming the system so that it works in favour of all pension savers, not just those who have been able to accumulate large savings.
Jane Vass is head of public policy at Age UK