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20/10/2012 - "Pot-Follows-Member" pension worry

Ministers' new plans for British pensions could see workers lose a quarter of their cash when they move jobs, pension funds and campaigners warned.
 
The Department for Work and Pensions (DWP) wants people who move jobs to be able to transfer pension pots from former employers into the retirement scheme at their new place of work in a ‘pot follows member’ scheme.
 
However Ms Joanne Segars, the chief executive of the National Association of Pension Funds (NAPF) said that "this scheme proposed by the government could significantly reduce the value of a pension as it could lead to an employee's money being transferred from good scheme with low fees and high returns into poorly-managed one with high charges and low returns as they changed jobs.

"This could have a significant impact on a person retirement pot, as much as 25 per cent or £20,000" she said."
 
She was joined in her condemnation by TUC general secretary Brendan Barber, Age UK director Michelle Mitchell and Which? chief executive Peter Vicary-Smith who all warned in a letter to the Daily Telegraph today that it is potentially risky.
 
They said it could see money being transferred from good schemes with low fees to naff schemes with high fees, meaning that British workers wouldn't get the best deal when they retire.
 
A person on half-average earnings who saves for 45 years would have a pension £82,000 in an ‘aggregator scheme’. However, this would fall to as little as £61,000 in a ‘pot follows member’ scheme due to high fees and variable investment returns.
 
Additionally, the National Pensioners Convention (NPC) warned that ministers are set to nick a fiver every year from each of Britain's pensioners.
 
Switching the rate of inflation used when increasing the state pension from the Retail Price index (RPI), to the Consumer Price index (CPI) is set to cost £5.20 a year.
 
The Office of National Statistics said today that the CPI for September was 2.2 per cent, while RPI was higher at 2.6 per cent.
 
These figures will be used when pensions are increased next April.
 
An NPC spokesperson said "As a result, next year's state pension will rise by £2.70 a week - rather than the £2.80 which would apply under RPI.

"Over the course of the year a pensioner with a full basic state pension will miss out on £5.20. For millions of older women who don't qualify for a full state pension the situation is even worse. Their increase will be just £1.60 a week."
 
Report from Ian Bell