Pot-follows-worker plan raises pension concerns
As part of its preparations for the introduction of auto-enrolment in October, the government has outlined plans for pension pots to follow workers when they move jobs.
Auto-enrolment will require employers to enrol their workers into a qualifying workplace pension scheme and this is expected to lead to an increase in the number of pension pots a worker accumulates during their working life.
The pot-follows-worker plan has raised alarm among pension and consumer groups with Age UK, the TUC and Which? issuing a joint statement suggesting it could leave pensioners out of pocket.
While the government believes the scheme could halve the number of dormant pension pots that could accumulate, there is concern that it could lead to workers’ pension funds being transferred into less lucrative schemes when they move employment.
The National Association of Pension Funds (NAPF) calculates that moving a £10,000 pension pot from a scheme with an annual management charge of 0.5 per cent into a scheme with a charge of 0.9 per cent would erode the fund by 10 per cent, or £1,500 over 25 years.
The pensions industry had called for a centralised low-cost aggregator system to be set up, into which workers could move their pension when they changed employment.
The aggregator system, which would have been based on a limited number of high quality pension schemes with low charges, good governance and economies of scale, was not endorsed by the government.
Richard Lloyd, executive director of Which? said: “One of the most important things people need to do is save for their retirement and government policy needs to make sure that every penny counts.
“That’s why we’re disappointed at the government’s wish to adopt a ‘pot follows member’ approach which could mean people end up in poor value schemes which have a detrimental effect years down the line.”
Meanwhile the Office for National Statistics has warned that membership of company and private pension schemes is continuing to fall.
The latest figures show that just 9 per cent of workers in the private sector contribute to an employer’s final-salary pension scheme.
Fewer than 50 per cent of all employees, including both private and public sector workers, contribute to any company pension.