‘Job for life’ is a term increasingly being confined to the history books. The idea of working for the same company for 40 years and retiring with a gold watch or carriage clock has all but disappeared.
These days, job-hopping is common-place and research we recently conducted revealed that three in five British workers have already had at least four jobs in their lifetime, with one in ten of those aged over 55 having worked at more than ten different places.
Multiple pension pots – a managing nightmare
One of the side effects of greater mobility within the UK workforce is an increase in the number of separate pension pots we all have. Over half (56%) of people we surveyed have more than one pension pot and nearly one in ten have four or more – a figure which rises to one in four for those aged over 55.
While the challenge of managing and monitoring multiple pension pots is already a reality for many, auto enrolment will result in an explosion in the number of small pension pots which risk being forgotten about.
At the moment, the Department for Work and Pensions (DWP) estimate that there is £3bn sitting in lost pension pots but, with auto enrolment, this number could rise to a staggering £757bn.
While this figure is hard to comprehend it is easy to understand how pots get lost. Almost a third of those we surveyed said they don’t know where all their pension pots are and a quarter confessed that they don’t always inform all their pension providers when they move house.
“Pot follows member” – an initiative by Pensions Minister Steve Webb
To tackle the growing issue of small pension pots and to reduce the risk of these pots being forgotten about, Pensions Minister Steve Webb is proposing that people’s pension savings should automatically transfer to their new employer’s scheme when they change jobs – an initiative labelled ‘pot follows member’.
Over a third of people (39%) said they would like their pension pot to automatically follow them when they went to a new company rather than having to set up a new scheme with their new employer.
But, four in five (81%) said they would worry if their pension pot was transferred to a scheme which didn’t perform as well as the old one and 86% said they would be concerned if their pot was automatically moved into a scheme where the charges were higher. Concern over charges is even greater for over 55s with 89% stating that they would be concerned if their pension pot followed them to a higher charging scheme.
There are many strong arguments for pot consolidation and tackling this issue sooner rather than later makes good sense. But, it’s imperative that safeguards are put in place to prevent people’s hard earned pension savings being automatically transferred into unsuitable schemes.
So that savers can feel confident that wherever their pot goes, it will always be in a scheme which meets certain quality standards, we firmly believe that workplace pensions used for auto enrolment should be officially licensed.
The government also needs to ensure that the transfer rules and processes are efficient so members’ pots are not eroded by the costs of consolidation else the benefits of such a system could easily ebb away.