Pensions minister Steve Webb has signalled a radical savings overhaul by confirming the Government’s support for a “pot follows member” automatic transfer system.
The Department for Work and Pensions this week published a consultation document outlining plans to introduce a new system which will mean new automatic enrolment pension pots will eventually move with employees when they change jobs.
The Government will consult on four different pension pot limits for the auto-transfers system including £2,000, £5,000, £10,000 and £20,000.
Speaking to Money Marketing, Webb says: “We felt that pot follows member offered the best prospect of getting people to engage because their pot ends up in one place.
“We have proposed four different limits – £2,000, £5,000, £10,000 and £20,000 – to show the trade-offs. So at £2,000 you do not get much consolidation but there is no real consumer detriment problem. At £20,000, it is serious money and you need to decide where advice will fit in. We want to hone the debate to a preferred option and then work from there.”
The Government is looking to reduce potential consumer detriment by limiting the reforms to auto-enrolled pension pots.
Webb says: “Provisionally the reforms will cover auto-enrolled pots only. The pot size limit then follows from that conversation.
“If you think consumer detriment is a really big problem you might have a low limit, but if you think most auto-enrolment schemes are much of a muchness and consolidation is the most important thing then you might want a higher limit.”
The DWP will also look to improve the existing transfer system before structural changes are introduced.
Webb says: “You can think of this as being a phased approach, building on the existing regime first and then looking to legislate and introduce auto-transfers in two or three years.”
Norwest Consultants principal Harry Katz says: “The Government seems to be taking a blanket approach here which I am not comfortable with. This will also inevitably cost money because someone will need to administer these automatic transfers.”