A proposal for small pension pots to move with workers until it reaches a “reasonable level” has been put forward as an alternative to radical reform planned by the government.
A report from LCP, published today (April 19), estimated 2mn pension pots are left behind as people move jobs and therefore suggested a possible solution which it called “magnetic pensions”.
It builds on the ‘pot follows member’ model and recommends pensions are ‘magnetically attached’ to savers and move with them to their new job, where it would be combined with their new workplace pension.
Small pots would continue to be combined in this way until the worker had accrued a decent single pension pot at which point the automatic transfer of pensions would cease.
Workers could opt out of this process at any point if they wanted their pension pot to remain where it was.
Laura Myers, head of DC pensions at LCP said: “We are advocating a much simpler and more cost-effective solution which keeps the best features of automatic enrolment, such as a single pension scheme in each workplace, but makes sure that people do not reach retirement with large numbers of small pension pots.
“We hope that the next government will think again about the current direction of policy and instead deliver a solution which pension savers will understand and which will deliver the best outcomes for people on average and lower incomes.”
The government is considering a range of initiatives to tackle the problem of pensions left behind including automatic consolidation of pension pots under £1,000 and ideas focused on giving ‘member choice’ in workplace pensions, announced in the 2023 Autumn Statement.
Jamie Jenkins, director of policy and communications at Royal London, said the idea was sensible.
He said: “This is an eminently sensible proposal which would be easily understood by savers as they move from job to job, bringing their small pension pots with them.
"While it might not have been the right time to implement this during the phasing of automatic enrolment, ‘pot follows member’ should now be revisited, having identified the serious challenges with other proposals.”
tara.o'connor@ft.com
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