Pension pots to move with employee
Finally the Government has made a positive move for pensions by allowing workplace pension funds worth less than £10,000 to automatically follow employees when they move to a new job.
Whilst this might not achieve the ‘big fat pot’ the pension Steve Webb described it does reduce the number of dormant funds and allow workers to build up which would buy them a better retirement income than multiple small pots of money.
The Department for Work and Pensions has estimated that people on average have 11 jobs over their lifetime, which by 2050 could result in about 50m dormant pension pots, 12m of which will be worth less than £2,000 and 33m less than £10,000.
To counter this it will introduce a “pot follows member” system where funds worth up to £10,000 will go with the worker to their new employer’s scheme, unless the saver opts out of the transfer. Initially this will effect only defined contribution schemes, where payouts are based on the fund’s performance, but eventually it could be rolled out to defined benefit (final salary) schemes.
Personally I hope this a move in the direction of making transferring pensions easier for all, including expats. In the USA transferring pensions for the good of the client is a simple process allowing advisers to help their clients maximize their retirement pots.
Also announced today is that the practice of short service refunds – which sees employees’ pension contributions refunded if they have been a member of a trust-based scheme for less than two years – will be scrapped as of next year.
Nigel Green deVere Group
Blog written 23rd April