Great news on pensions: your savings will follow you
Anyone who changes job relatively regularly and doesn't have a clue about pensions is about to receive a major boost to their retirement prospects.
The government is changing the pension rules, so that when you change job after October next year, your pension pot will automatically come with you (as long as it isn't worth more than £10,000). It should mean an end to the current system, where people build up a myriad of tiny pensions and end up losing and forgetting them by the time they come to retire.
The proposals were unveiled in a draft document released by the government this week. It explained that in the early days, this won't happen entirely automatically, as only a limited number of schemes will be included in the rules, and they will always contact the individual to check if they are happy for their pension to be moved. However, the aim is that over time this will become automatic, and if you really want to abandon smaller pots all over the place, you'll have to specifically arrange to do so.
There will, of course, be times when you switch from an employer with a great pension scheme to one offering something far less generous. In this case there are exemptions to protect you. You will not, for example, be automatically switched out of a final salary scheme into a defined contribution one, or to one with much higher charges. Active pension scheme members will also be left alone - on the basis that they are already on top of their pension savings. It means that before an account is considered edible for an automatic transfer, it will have to have been left dormant for 12 months.
The change is a result of the fact that so many more people have a pension nowadays. The introduction of auto-enrolment means that unless they specifically opt out, most people are automatically enrolled into a pension, and both they and their employer have to make contributions. It means that younger people, and those who change jobs frequently, who in the past tended not to bother taking out a pension, are now often automatically enrolled.
This new change is simply the missing piece of the puzzle, ensuring that someone who changes job every year and doesn't engage with their pension, doesn't end up with 40 pension pots by the time they retire. In fact, without the change, the government expects there would be 50 million dormant pots by 2050, which Pensions Minister Steve Webb described as: "Billions of pounds floating around that should be funding better retirements for people."
The changes are great news for people who aren't interested in their pension or engaged with saving for the future. Ironically although it's exactly this group that needs all the help it can get in order to protect them from a cash-strapped retirement, most of them take so little interest in pensions that they won't notice or care about the change. It may be a major positive step for the DWP, and Webb in particular, but they shouldn't expect any thanks.
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