The government will put forward proposals later this year to address short-service refunds, small pension pots and transfers.
Regulatory differences of pension funds, including the use of short-service refunds rules have been scrutinised in a call for evidence.
Short-service refunds mean that employees who leave their job in less than two years get a default refund of their pension contributions.
Steve Webb, pensions minister, said: “Automatic enrolment at its core is about getting people to save for their retirement. With just over half of working people changing jobs within two years, the use of these refunds pose a significant threat to what we are doing.
“We will announce a full set of proposals in the Autumn, outlining proposed changes to short service refunds, together with potential ways to manage the burden of small pension pots after automatic enrolment.
“In the meantime I would encourage employers not to make their decision about scheme type on the assumption that short service rules will continue to exist in their current form going forward.”
Darren Philp, director of policy at the National Association of Pension Funds (NAPF), added: “The Department of Work and Pensions (DWP) is right to acknowledge that the removal of short-service refunds will result in an increasing number of smaller pension pots and that this is a complex issue. Its commitment to further exploring the issue is a sensible next step.
“But we are disappointed with the signal that the government intends to legislate. Simply changing one aspect of the rules that govern occupational pensions could lead more employers to move away from trust-based schemes.
“Good governance in defined contribution (DC) goes to the heart of good member outcomes. The government needs to be careful not to create a governance vacuum which could result in poorer member outcomes and work against what the government is trying to achieve.”
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