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Critics say pension scheme could prove too expensive
11:09am Wednesday 7th November 2012 in Business: Personal Finance
FEES for workplace pensions are to be closely scrutinised after criticism of the G o v e r n m e n t ’ s favoured way to move pensions from one job to another after auto-enrolment.
Pensions Minister Steve Webb has decided to stick with the Department for Work and Pensions’ (DWP) “potfollows- member” scheme in spite of criticism by various interested parties that it could prove too expensive.
The DWP aims to introduce the scheme to prevent millions of small retirement pots lying dormant and forgotten after people change jobs.
It estimates that about 50 million such pots could be created by 2050, if the system is not implemented.
The DWP said that consolidating different pots through a pot-follows-member system is more cost-effective than alternative forms of accumulation.
Based on a £5,000 minimum pot size, the DWP says that the system is more effective than an aggregator system or using a large existing scheme such as the National Employment Savings Trust.
Even if the pot limit were £20,000, the DWP said that automatically transferring funds to the new employer’s scheme is still more effective than introducing a separate aggregator.
However, leading charities and consumer groups representing millions of savers claim that the pot-followsmember scheme is impractical, risky and could be expensive.
The National Association of Pension Funds, Age UK, Which? and the Trades Union Congress collectively argue that the scheme could cut the value of a pension as it could involve money being transferred from good schemes with low fees and high returns into poorly-managed schemes with high charges and low returns.
They urged the Government to start a system of lowcost aggregator schemes which would pool people’s retirement savings from previous jobs in one place.
They would have low charges and give clarity to savers.
The group has collectively claimed that the monetary difference in the value of a person’s retirement pot between the two schemes could be up to 25 per cent.
Steve Webb, the Pensions Minister, says that his decision to stick with the pot-follows- member route means that he will keep an extra close eye on the fees that workplace schemes charge.
In another criticism, the shadow pensions minister, Gregg McClymont, has said that pension charges remain opaque and that savers cannot know the true price of their pension because charges are not clearly presented.
If you are changing job and moving your pension pot, speak to an independent financial advisor.