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Pension pot transfer plans ‘could wipe 25% off retirement income’

 

Plans to make it easier for workers to transfer their workplace pensions could cut individuals’ retirement income by up to a quarter, some experts have warned.

 

The Government recently announced proposals to allow employees to transfer their pension pots from employer to employer when they change jobs.

 

With the average employee switching jobs 11 times during the course of their career, the Government says there is a danger of workers accumulating a large number of small pension pots.

 

However, in a letter to the Daily Telegraph, critics say the plan is ‘impractical’, ‘unacceptably risky’ and could be ‘highly expensive’.

 

While they welcomed the Government’s efforts to address the problem, unions and consumer groups called on ministers to rethink the proposals.

 

The letter said: ‘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.’

 

The letter is signed by the National Association of Pension Funds, the TUC, Age UK and the consumer group Which?.

 

Meanwhile, Pensions Minister Steve Webb said: ‘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. We need a big shake-up to make it safe, cost-effective and easy to move your pension pot around.

 

‘It is time to stop debating different options and get on with making this positive change for consumers’.