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Steve Webb: Govt will fix ‘ludicrous’ high-cost pension transfers

Pensions minister Steve Webb has committed to driving down the “ludicrous” cost of defined contribution pension transfers as part of radical “pot follows member” reforms.

The Department for Work and Pensions is currently working through proposals to tackle the problem of stranded pots created when people switch jobs.

Policymakers want to introduce a new auto-transfer system for people with pension pots worth less than £10,000. Under the reforms, employers will be required to “pull” the small pots of new employees across to their pension scheme periodically.

However, some in the industry want small puts to be automatically transferred into large “aggregator” pension funds.

Speaking at a Nest event in London this week, Webb said: “The danger of the aggregator model is you create half a dozen beautifully formed but uncompetitive monsters.

“We will implement pot follows member, but what we want to avoid is pointless churn. So we are saying that periodically schemes will need to sweep up stranded pots.

“But transferring money in the world of pensions costs ludicrous amounts of money. That is a nonsense and we can fix that.”

Worldwide Financial Planning IFA Nick McBreen says: “Pension transfers are complex, particularly when you are dealing with old pots with guarantees attached. It would be dangerous for the Government to swoop in removing costs without considering the value those costs bring.”

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