Workplace pension funds worth less than £10,000 will automatically
follow employees when they move to a new job, the government has
announced.
The pensions minister, Steve Webb, said the rule would reduce the number of dormant funds and allow workers to build a "big fat pot" which would buy them a better retirement income than multiple small pots of money.
Recent research by the charity Age UK suggested that about a quarter of people had lost track of pensions when they changed jobs, and the introduction of auto-enrolment into pensions in October 2012 is set to mean many more people end up joining several schemes during their working lives.
The Department for Work and Pensions has estimated that people on average have 11 jobs over their lifetime, which by 2050 could result in about 50m dormant pension pots, 12m of which will be worth less than £2,000 and 33m less than £10,000.
To counter this it will introduce a "pot follows member" system where funds worth up to £10,000 will go with the worker to their new employer's scheme, unless the saver opts out of the transfer. Initially this will effect only defined contribution schemes, where payouts are based on the fund's performance, but eventually it could be rolled out to defined benefit (final salary) schemes.
"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," Webb said.
"When people change job they often leave behind a pension pot which becomes forgotten and which can even attract higher charges once they leave the firm. We want to make it the norm that when you move job your pension rights can move with you if you wish."
The DWP said introducing automatic transfers was projected to reduce the proportion of people reaching retirement with five or more dormant pots from 25% to one in 30.
The proposal will be included in the forthcoming pensions bill.
The pensions minister, Steve Webb, said the rule would reduce the number of dormant funds and allow workers to build a "big fat pot" which would buy them a better retirement income than multiple small pots of money.
Recent research by the charity Age UK suggested that about a quarter of people had lost track of pensions when they changed jobs, and the introduction of auto-enrolment into pensions in October 2012 is set to mean many more people end up joining several schemes during their working lives.
The Department for Work and Pensions has estimated that people on average have 11 jobs over their lifetime, which by 2050 could result in about 50m dormant pension pots, 12m of which will be worth less than £2,000 and 33m less than £10,000.
To counter this it will introduce a "pot follows member" system where funds worth up to £10,000 will go with the worker to their new employer's scheme, unless the saver opts out of the transfer. Initially this will effect only defined contribution schemes, where payouts are based on the fund's performance, but eventually it could be rolled out to defined benefit (final salary) schemes.
"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," Webb said.
"When people change job they often leave behind a pension pot which becomes forgotten and which can even attract higher charges once they leave the firm. We want to make it the norm that when you move job your pension rights can move with you if you wish."
The DWP said introducing automatic transfers was projected to reduce the proportion of people reaching retirement with five or more dormant pots from 25% to one in 30.
The proposal will be included in the forthcoming pensions bill.
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