The Minister of State, Department for Work and Pensions (Steve Webb)
I am pleased to announce that today we have achieved key milestones that will help secure a robust, efficient workplace pensions system for the 21st century.
First, we are publishing “Meeting future workplace pensions challenges: improving transfers and dealing with small pots” (Cm 8184). This paper sets out actions that the Government are taking to make sure people get the most out of the money they save:
We will abolish short service refunds for defined contribution occupational schemes. These rules jeopardise pension savings for low to median earners and will not be part of the automatic enrolment world. We expect this rule change to happen as soon as 2014, provided we are able to implement an accompanying solution for small pot transfers at the same time. A full impact assessment is being published alongside the paper to take account of this change.
Abolishing short service refunds will create more small pension pots for defined contribution (DC) occupational schemes, but this is part of a much wider problem. We anticipate that automatic enrolment and a highly mobile jobs market will lead to around 4.7 million additional small pension pots in our pension system by 2050. The burden of these small pots is compounded by the fact that systemic barriers, like cost and complexity, prevent people from moving and consolidating their pensions into one place.
So our paper seeks views and evidence from stakeholders on how we can reduce the number of small pots and improve transfers. We discuss possible solutions: ranging from minimal changes to the current system to an automatic transfer system where pension pots can be collected in one or more “aggregator” schemes or could follow people from job to job. We welcome feedback on these possible approaches.
Alongside this paper we are also publishing a consultation on the 2012-13 review and revision of the automatic enrolment thresholds. This consultation invites contributions to inform how we take this review forward for the first year of automatic enrolment live running. It is important that we get this review right—so that we target the correct group for automatic enrolment while carefully weighing the cost to business and the impact on the pension industry.
I would like to thank the pensions community for their input to this work so far. This collaboration needs to continue if we are to make automatic enrolment a success.
Copies of the paper will be available in the Vote office and Printed Paper office later today.
Copies of the consultation document and the impact assessment will be placed in the library.
These publications will be available later today on the Department’s website: http://www.dwp.gov.uk/ consultations/2011/