The Government is looking to crack down on the “regulatory arbitrage” created by employers launching trust-based schemes to take advantage of the ability to get refunds if employees leave within two years.
Speaking last night at a Headlinemoney event in London, pensions minister Steve Webb said he was concerned about the effect this would have on individuals who frequently move jobs. He will shortly be issuing a call for evidence to examine ways of addressing the issue.
A number of providers, including Legal & General, Xafinity and Standard Life, have launched, or expressed their intention to revamp or launch, master-trust offerings in anticipation of increased demand ahead of the upcoming auto-enrolment reforms.
Trust-based schemes allow employers and employees to get contribution refunds if the individual leaves within two years, a flexibility expected to be very attractive to a number of employers.
However, Webb said this will lead to employees who often move jobs failing to save into a pension.
Webb said: “We want to send out a very clear message that says we do not want people to end up with no pension because they get these refunds.”
In October 2009, former Labour Work and Pensions secretary Yvette Cooper said the Government had no plans to address the issue.
Scottish Widows market director, pensions John Taylor says: “If this arbitrage is allowed to continue, there’s a danger that it will undermine any remaining confidence in pensions. Those who change employers regularly could be left with nothing in their pension pot. This is not the intention behind pension reform.”