DWP opens consultation on ‘Operation Big Fat Pension Pot’

The Department for Work and Pensions (DWP) has opened a consultation outlining the options for easier workplace pension transfers, dubbed by pensions minister Steve Webb as “Operation Big Fat Pension Pot”.

In today's announcement, the DWP pledged to end short service refunds (SSRs), in which workers who leave jobs within two years can withdraw their pensions, in the next Pensions Bill.

The consultation, which will be published later today, will also outline different methods of ensuring small pension pots built up by people who work in multiple jobs over their lifetime can be consolidated.

Webb has already hinted at different methods of doing this, citing a system of automatic transfers as employees move jobs as a strong possibility.

Other options are simply removing technical and legal barriers which make transferring small pots more difficult.

"I am concerned that people are at risk of losing their small pension pots as they move from job to job," said Webb.

"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 predicts the advent of auto-enrolment and a highly mobile jobs market will create 4.7m new small pension pots by 2050.

Maggie Craig, director of financial conduct regulation at the Association of British Insurers (ABI), said: "The ABI agrees with the government that we need to make it easier for people to amalgamate their small pension pots.

"Having fewer, larger pots will make it easier for people to engage with their saving; helping them keep track of their pension pots and work towards a good retirement income."

The proposals in detail

The DWP set out three main methods of consolidating pension pots.

1. Changes to the current voluntary system of consolidation

This could involve providing savers with more information about consolidation, standardising paperwork for transfers, requiring all schemes to accept transfers in, reducing the fixed costs of administering small pots and promoting the Pensions Tracing Service.

However, the DWP notes in the consultation that this approach may not overcome individual inertia.

2. Aggregator scheme

In this approach all small pension pots under a certain size would be moved automatically into an aggregator scheme when an employee leaves a job.

The aggregator would accept even the smallest pot and have a simple process. The National Employment Savings Trust (NEST) has been mooted as an aggregator.

3. Pension pots following employees

In this approach pension pots would follow employees as they move jobs, although this would rely on the employee auto-enrolling into a pension scheme in each job.

The DWP has asked how risks to individuals presented by different charge levels and investment returns between schemes could be mitigated.

It is also seeking opinion on what should happen if an individual is unemployed for an extended amount of time and whether the system should involve currently existing small pots.