The Government has set out plans to introduce an automatic transfer system for “pure” defined contribution pension pots worth less than £10,000.
However, concerns remain that people could lose out if their pensions are automatically moved from a good scheme to a bad scheme.
The Department for Work and Pensions says the new system will initially exclude defined benefit pensions and will give individuals the right to opt-out if they do not want their pension to follow them when they switch jobs.
The Government has also proposed restricting the reforms to “pure” DC schemes, meaning that any pensions with guarantees would be excluded from the auto-transfer system.
Pensions minister Steve Webb says: “Instead of having lots of small pension pots all over the place, we want people to have a “big fat pot” which will buy them a better pension.
“When people change job, they often leave behind a pension pot which becomes forgotten and which can even attract higher charges once they leave the firm.
“We want to make it the norm that when you move job your pension rights can move with you if you wish. This will reduce the costs of providing pensions and will help people to be much more engaged with their pension savings.”
Labour Shadow pensions minister Gregg McClymont says: “The Government are still getting it wrong on small pension pots.
“These plans are vague and unconvincing and there’s still a big risk that savers’ pension pots can be transferred from good schemes into bad ones.”
Policymakers are considering the pros and cons of two different approaches to auto-transfers.
The first, a “pot matching” system, would require schemes to upload information relating to members’ pension pots onto a new central IT system which would facilitate auto-transfers.
The new IT system would be set up and run either by the industry or by Government. If the Government built and maintained the system it would look to recover the costs from the industry.
The second option would require schemes to give information to members about any pensions that are eligible for transfer under the new system.
When a person moves jobs they would give their pension details to their new employer as part of the induction process. Their new pension scheme would then initiate the transfer process.
The Government is also considering two options for the frequency of auto-transfers.
Under the “member specific” approach the auto-transfer would be completed “very shortly” after the member starts work with a new employer.
The alternative approach would see auto-transfers completed on a periodic basis.
The new auto-transfer system will only apply to pension pots which began to accrue after a certain date, although the Government has not yet decided when this will be.
In addition, the Government has confirmed plans to abolish short service refunds from 2014.