Short service refunds for DC schemes will be abolished and the government will also be taking action to prevent people losing small pension pots, Minister for Pensions Steve Webb said today.

By abolishing short service refunds, individuals who move jobs often can no longer get their pension contributions back.

Webb said: “I want to ensure that as people move jobs, their money stays in pensions. Taking the money out goes against our overall goal of getting millions more people saving.”

To solve the issue of people losing small pension pots, the government published a paper today to address the complexities in the current system that make it difficult for people to transfer their different smaller pension pots into a single bigger pension pot.

“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 for 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 minister explained.

Around 4.7 million additional small pension pots will be added to the UK pensions system by 2050, as a result of a highly mobile jobs market and the introduction of auto-enrolment, the Department for Work and Pensions (DWP) estimates. On average, an individual works for 11 different employers over the span of their career.

In a statement, DWP said that options for consultation range from small changes to encourage transfers to an automatic transfer system where pension pots could either be consolidated in one or more ‘aggregator’ schemes or move with people from job to job.

Darren Philp, director of policy at the National Association of Pension Funds (NAPF), believes Webb is right to say that short service refunds should not be abolished until the problem of small pots and transfers has been dealt with, although 2012 is very ambitious for dealing with this issue.

“The current rules and regulations make transfers too bureaucratic and difficult for employees and pension schemes to navigate. Workers changing their job often find it difficult to transfer their pension pot when they move to a new company," he said.

“Auto-enrolment will bring millions more workers into pensions saving. But without action to make it easier for workers to transfer their pension pot when they move job, much of this new saving will end up stranded in small pots.

“This will be a bad outcome for employees, employers and the pensions industry as these small pots are expensive to administer, and will drive up costs and charges in the long run."

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