The Department for Work and Pensions (DWP) has confirmed its plans to make it easier for employees to take their workplace pension scheme with them when moving jobs.
Its pot-follows-member model, which was first published in July 2012, will mean that over an employee’s working life any pension pots of less than £10,000 accrued will automatically move with them between employers.
Introducing automatic transfers is projected to reduce the proportion of people reaching retirement with five or more dormant pots from one quarter to one in thirty.
Initially, transfers will only be for money purchase defined contribution (DC) schemes. Those in defined benefit (DB) pension schemes will not be included at this stage.
Pension scheme providers and administrators will operate the transfer, but individuals will be provided with information and have the right to opt out of the process. The DWP is working closely with the industry to develop detailed options for how the process will work.
The government has also confirmed plans to ensure that money put into pension savings stays in, with the abolition of short-service refunds. This will apply to individuals who leave a trust-based money purchase scheme within two years.
Both plans will come into force once the forthcoming Pensions Bill attains Royal Assent.
Steve Webb, minister for pensions (pictured), said: “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 jobs, they often leave behind a pension pot which becomes forgotten and which can even attract higher charges once they leave the [organisation].
“We want to make it the norm that when you move jobs 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.”