The government is ignoring the problems of multiple pension pots that could drain £1bn a year from individuals’ retirement savings, Hargreaves Lansdown has warned.
The provider says that as a new pension pot is created every time a person moves job, the auto-enrolment pension system faces excess costs of hundreds of millions of pounds every year.
People will go through an average 11 jobs in their working lives, with a quarter of them working for more than 14 employers.
This means that every time they change jobs the pension from the last job is suspended and they have to join a new pension with their new employer.
The Department for Work and Pensions has projected this will mean 50 million dormant small pension pots by the middle of this century, costing hundreds of millions a year in unnecessary additional administration charges.
Hargreaves Lansdown head of policy Tom McPhail says: “If we forced employees to change their bank account every time they changed jobs there would be an outcry, yet this is what auto-enrolment does with their pensions.”
Hargreaves Lansdown believes the solution is to let people have their new employer’s pension contributions paid into their existing pension when they change jobs.
It says this change to the system would promote better engagement with pensions and also help to solve the problem of auto-enrolling the self-employed.