Simplifying small pension pots

This blog first appeared in Money Marketing

The growing  number of people with multiple small pension pots has been an issue for too long.

The government itself  has calculated there will be an additional 4.7 million more small pension pots in the years to come as a result of the introduction of auto-enrolment, government moves to extend working lives and  increasing  job mobility.

So, Pensions Minister  Steve Webb’s  announcement that he has launched a consultation to simplify the system and make it easier to amalgamate  small pots is excellent news. For millions of people with modest pensions accumulated over their lifetimes, the right changes to this currently restrictive and overly complex system could mean a simpler and more cost-effective introduction to retirement.

Age UK has been lobbying for some time for the Government to recognise the difficulties facing these pension savers.

In particular, we’ve been calling for  the ban on transfers  into  the National Employment Savings Trust (NEST)  to be lifted  so that  people leaving an employer can be encouraged to transfer their pension savings  and can hold them in one single lifetime account  with  low charges.  This needs to be introduced as early as possible and well before 2017 when a review of the ban on transfers is currently expected. As part of the general shift from defined benefit to defined contribution pensions, there will be many people coming up to retirement with small pots in the next few years, and public attitudes towards pensions will be damaged if they find it difficult and complex to access their savings.

The government took the first step  in overhauling  its pensions legislation in the  Autumn Statement  when it  announced that, from April 2012, savings under £2,000 in a maximum of two personal pensions can be paid out in cash. This reform has been on the cards for some time so we’re pleased that it is finally being implemented.

Let’s hope that Steve Webb’s announcement  heralds  the next big  step in  transforming the system so that it works in favour of all pension savers, not just those who have been able to accumulate large savings.

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