The Department for Work and Pensions (DWP) has proposed the abolition of short-service refunds for defined contribution (DC) pensions in order to protect the pension pots of people who move jobs often.

Short-service refunds allow individuals to get their pension contributions back, but leave them without a pension.

The DWP has published a paper to address complexities in the current system, which make it difficult for people to transfer their pension pots into one big pension throughout their careers.

The options under 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.

Steve Webb, the minister for pensions, 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.

“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.”

Darren Philp, director of policy at the National Association of Pension Funds (NAPF), added: “This is a good start to address the issue of small pension pots.

“Steve 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.

“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 organisation.”

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