Short service refunds abolished in Webb’s drive to grow ‘big fat pension pots’

Short service refunds from defined contribution schemes are to be abolished as part of the government’s drive to increase pension saving.

Pensions minister Steve Webb said outlawing refunds would make pension saving more viable for people who move jobs often.

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."

The Department for Work and Pensions also published its ideas on how best to deal with small pension pots - not usually catered for by annuity providers.

The consultation paper identifies the system's current complexities which make it hard for people to transfer pension pots throughout their working lives.

The minister added: "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 government said the "highly mobile jobs market" and the introduction of auto-enrolment would result in an additional 4.7 million small pots by 2050.

It added the average worker is employed by 11 different companies over their career and it is vital barriers to pension pot transfers are removed.

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.

The changes will form part of the next Pensions Bill.

Hymans Robertson head of DC Lee Hollingworth said the move move would have a profound impact on trust-based schemes.

"Having now confirmed the decision the question now is what does this mean for DC provision within an auto-enrolment environment?

"Having addressed the anomaly that currently exists between trust and contract this move has created another - unlike a contract based plan, trustees are now faced with the responsibility of administering many more small pots. A solution needs to be found and fast to help scheme sponsors who are making strategic decisions right now for auto-enrolment.

"In our opinion there needs to be a central scheme to which, on leaving a trust scheme, a member's benefits can be transferred to without the need for their consent. The obvious candidate for this would be NEST.

"The main issue to overcome is to avoid potential claims from members that any transfer wasn't in their financial interests."