Today’s workers are at risk of reducing their retirement income because they aren’t keeping track of the pensions they build up at each company they work for, which could result in a pensions ‘black hole’.
An end to the ‘jobs for life’ culture means that today’s workers are moving jobs more often and building up small pension pots which they then find it difficult to keep on top of, says a new survey by Age UK.
Nearly half of all these ‘missing’ pensions are simply forgotten about by employees – so they could be missing out on valuable retirement income. Apathy is also partly to blame. The survey found that less than a third of workers would bother trying to trace their pensions.
Read more about company pensions in our guide to company pensions explained.
Auto-enrolment and small pots
A quarter of employees aged 25 to 34 have already worked for five to six companies, something the report calls ‘job-hopping’.
The introduction of auto-enrolment last October means that consumers will now be enrolled into workplace pension schemes at each company they work for, no matter how short their time there. Read our guide to auto-enrolment and nest to find out more about this.
The Department for Work and Pensions has predicted that there will be 50 million dormant pots by 2050. It puts this down to millions of people who get enrolled into a pension who will leave their pots stranded with previous employers.
‘Pot follows member’ scheme
In October last year, the government said that it planned to introduce a ‘pot follows member’ scheme, whereby employees could take their pensions with them to new jobs.
However, Which?, along with the National Association of Pension Funds, Age UK and the TUC opposed this idea, because people could transfer out of good schemes into poorer ones. This could reduce retirement income by as much as 25%. Instead they proposed an aggregator scheme, which would pool people’s pension pots.