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Consultation on planning for retirement

Jon Dunkley, 15 Feb 2012


The end of 2011 brought a consultation paper from the Department for Work and Pensions (DWP) aimed at consumers planning for retirement.

The DWP paper sets out new processes to tackle the mounting number of small pension funds held by consumers and also signals an end to short service refunds.

With auto-enrolment starting this year and an increasingly mobile workforce, the DWP is concerned that consumers will build up a series of very small pension pots over the course of their working lives which may become lost or eroded by charges. The average worker will have 11 employers over the course of a working life, and less than 1% of all workers stay with the same employer for life. As it stands, the DWP believes there will be an extra 4.7 million ‘small pots’ by 2050.

Speaking of the consultation, Pensions Minister Steve Webb said “I am concerned that people are at risk of losing their small pension pots as they move from job to job. I do not want to see people who are doing the right thing by saving, ending up with very little from their retirement because the system is too complicated. I want to make it as easy as possible for people to grow big fat pension pots.”

The consultation sets out three possible ways of handling small (under £2,000) pension funds:

  • Improving the current system by making it easier for people to transfer – for example through standardised forms.
  • Automatically consolidating pension funds into one or more ‘aggregator schemes’ when an employee leaves service – the national employment savings trust (NEST) being one option for such a scheme.
  • Automatically transferring benefits to the auto-enrolment scheme of the new employer.

The paper also signals an end to short service refunds for defined contribution (DC) schemes in a bid to encourage consumers to maintain pension benefits.

This article which appeared in full in the January 2012 edition of Financial Timesaver, the monthly newsletter for busy financial advisers.


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Jon Dunkley

Founder, ExamAngel

Jon is one of the UK’s most highly qualified financial planners. He has experience as both a tied and an independent financial adviser, as well as heading up technical teams in the UK and offshore.

He is the founder and owner of ExamAngel, specialising in helping students pass financial exams


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