Short-service pension refunds to be banned
Employees who have been with a company for less than two years will no longer be eligible for a refund of the money they have paid into a defined-contribution pension scheme, under proposed reforms.
The change, which is designed to stop employees leaving a firm without a pension, has been welcomed by the National Association of Pension Funds.
The government is working to make it easier for people with a number of small pension pots to consolidate them into one worthwhile pension.
This will be particularly important when the auto-enrolment scheme starts to be introduced in October 2012.
The scheme will make it compulsory for private-sector employers to auto-enrol their employees into a pension fund and make contributions on their behalf.
It will be phased in, starting with firms with over 120,000 employees, and working down in order of size until September 2016 when all firms will be included.
The Government expects that a highly mobile jobs market and the introduction of automatic enrolment will lead to around 4.7 million additional small pension pots in its pensions system by 2050.
Pensions Minister Steve Webb said: “I am concerned that people are at risk of losing their small pension pots as they move from job to job.
“I do not want to see people who are doing the right thing by saving, ending up with very little for their retirement because the system is too complicated.
“I want to make it as easy as possible for people to grow big fat pension pots,” he said.
In related news, a survey by the CBI found that only 1 per cent of its members plan to reduce employee pension provision as a result of the introduction of auto-enrolment, while 61 per cent will enrol defined-contribution scheme members on their existing terms.
The survey also found that 80 per cent of employers have considered how they will comply with auto-enrolment regulations.
CBI chief policy director Katja Hall said: “Our survey shows a heartening level of readiness for next year’s pension reforms among firms facing the change, with less prepared firms typically those who will not be enrolling staff for several years to come.”