Warning employers against factoring in short service refunds when selecting a pension scheme, pensions minister Steve Webb said they will no longer be a part of future pension landscape.
The Department for Work and Pensions (DWP) is examining if these issues could be addressed as they tackled the wider issue of pension transfers, said Mr. Webb while addressing the annual LCP Pensions Conference Today.
Terming the short service refund as the “troubling feature of the system”, Mr. Webb said they don’t fit with the government’s agenda of ensuring the population saved more for retirement.
The department will examine all the options available including ensuring pension pots defaulted to a single provider when workers changed employers, or insisting on funds shifted to new employer’s scheme.
“My vision is that instead of having lots of little pots, people will end up with one big fat pot, which would help them see the value of their pension and encourage them to shop around,” said Mr. Webb.
He also spoke on the need to weed out bad practices over enhanced transfer value exercises and the means to deal with workers stuck with small pension pots.
Mr. Webb cautioned people about reading too much into the scare stories that would inevitably appear in the media.
The yet-to be launched auto-enrolment presented a real opportunity to people without pensions, especially the younger workers, he said.
“If you’re 50 and not in a pension there’s probably a good reason. But if you’re 20 and not in a pension it’s probably just because you’re 20,” he added.
The main challenge remained in transforming the state pension system, Webber said, adding reforms would provide the foundation for future policies.
“If you don’t get that right then you can’t have a good foundation – it must be simple, understandable and provide a firm foundation,” he observed.
“If we look forward to the summer of 2012, when after years of preparation, blood, sweat and tears the starting gun fires and the first people are auto-enrolled, they will want to know whether to stay in, and a solid government foundation is key to that decision,” he added.