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29 Apr 2013

Small Pension Pots May Automatically Follow Workers To New Jobs

Employees who change jobs may see their pension pots automatically transferred to their new workplace if there is less than £10,000 worth of savings there, the Department for Work and Pensions (DWP) has proposed in a new plan.

According to government figures, British workers change jobs 11 times, on average, over the course of their career and it is estimated that by 2050, approximately 50 million pension pots will be dormant, the London Evening Standard reported.

The proposed automatic transfer of small pots aims to reduce the number of dormant pots in future years. While at present a quarter of all UK workers have five or more dormant pension pots, the government believes that the new rule would bring this number to one in 30. People would benefit from having one big pension pot when they reach retirement, rather than a number of small pots, which would help them to buy a better pension, UK pension minister Steve Webb commented.

However, the idea was met with concerns that the automatic transfer might mean that pension pots move from a better scheme to a less favourable one. Darren Philp, policy director at the National Association of Pension Funds (NAPF), explained that the move might put workers´ savings at risk because their pot might end up in a scheme with higher costs. Instead, he proposed that small pension pots are transferred into specifically designed large-scale, low-cost pension schemes. This would ensure that pension pots are better protected when transferred, which would also remove any bureaucracy, he added.

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