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by International Commercial Investment on October 16, 2012

Pensions ‘could lose quarter of their value if you change your job under new reforms’

The Department for Work and Pensions has drawn up what it says are ‘safe and cost-effective’ proposals to allow people to take their pensions with them when they change employer.

Moving jobs in the future could mean losing up to a quarter of your pension pot, critics of planned reforms warned last night.

The Department for Work and Pensions has drawn up what it says are ‘safe and cost-effective’ proposals to allow people to take their pensions with them when they change employer.

It says the ‘pot-follows-member’ scheme would reduce the number of pension funds which sit dormant when workers leave their jobs.

But consumer groups, pension fund managers, charities and workers’ representatives say the shake-up would be ‘impractical’, ‘highly expensive’ and ‘unacceptably risky’.

They said the proposals would see money being transferred from good schemes with low fees to poor schemes with high fees, meaning fund-holders would not get the best deal for their retirement.

The plans are questioned by Joanne Segars, the chief executive of the National Association of Pension Funds; Michelle Mitchell, the charity director general at Age UK; Peter Vicary-Smith, the chief executive of consumer group Which?; and Brendan Barber, the general secretary of the TUC.

In a letter to the Daily Telegraph, they wrote: ‘We agree with the Government that a system to automatically transfer these small pots is necessary. It is vital that savers are able to get maximum value from even small amounts of savings.

‘However, the Government’s solution, where the pot follows an employee who moves job, is impractical and risks reducing individuals’ retirement income. Pots could be transferred into poorly managed schemes, with high charges and low investment returns.’

They called on the Government to put in place a system of low-cost ‘aggregator schemes’, which would pool people’s retirement savings from previous jobs in just one place.

The plans for the ‘pot-follows-member’ scheme were announced by Pensions Minister Steve Webb.
He said: ‘Far too many people have absurdly small amounts of money scattered between far too many pension schemes.

‘I am determined to make sure that people start to build up decent pension pots and keep track of them.
‘For too long, an overly complex system has made it hard for people to transfer their money between pension schemes.’

Source: Daily Mail Online

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