LONDON (Reuters) — The United Kingdom government should allow people to transfer and consolidate small pension pots which could otherwise pose potentially serious risks to its new low-cost pensions scheme, an industry body said on Monday.
The government is due to phase in auto-enrolment in October, under which employers will sign up staff to corporate pension schemes unless they ask to be excluded. This could lead to up to eight million additional workers being signed up for pensions.
Under current rules for the scheme, to be administered by a specially created body called the National Employment Savings Trust (NEST), people who are enrolled will not be able to transfer in savings from previous pension schemes.
The National Association of Pension Funds (NAPF) is concerned that with more people set to be enrolled in a pension scheme, this could also increase the number of smaller pension pots as workers change jobs, adding to the burden on employers and schemes as well as proving less cost-effective for savers.
"The current system leaves savers with too many pots to keep track of," said Darren Philp, director of policy at NAPF. "It creates unnecessary complexity and may not lead to the best outcomes in retirement."
Some 2.4 million people in Britain have combined personal and stakeholder pension pots of less than 5,000 pounds and four million have less than 10,000, government figures show.
Currently, 1.4 billion pounds (C$2.2 billion) is tied up in 700,000 stranded workplace defined contribution (DC) pensions pots worth less than 5,000 pounds ($C7,900), a study by the Institute for Fiscal Studies (IFS) jointly funded by the NAPF and the Economic and Social Research Council (ESRC) found.
A parliamentary committee report published in March recommended that restrictions on transfers should be lifted as "a matter of urgency".
The NAPF, which represents 1,200 pension schemes in the U.K. with 15 million members and assets of around 800 billion pounds (C$1,200), welcomed moves to provide a solution to the problem of small pensions pots under auto-enrolment but urged further industry-wide action.
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