The National Association of Pension Funds (NAPF) has warned that the Government's plans to automatically transfer pension pots when a worker moves jobs would introduce new costs for pension schemes and employers.

By implementing the 'pot follows member' system, the Government said that the automatic transfers is projected to reduce the proportion of people reaching retirement with five or more dormant small pension pots of less than £10,000 from a quarter to one in thirty.

The Government said that the proposals would reduce the costs of providing pensions and will help people to be more engaged with their pension savings.

Minister for pension Steve Webb said: "Instead of having lots of small pension pots all over the place, we want people to have a 'big fat pot' which will buy them a better pension. When people change job, they often leave behind a pension pot which becomes forgotten and which can even attract higher charges once they leave the firm."

However Darren Philp, NAPF policy director, said that the approach would put workers' savings at risk, and has called for the Government to run a full impact assessment.

He said: "We are concerned that a worker's pension could be automatically shunted from an excellent pension into a bad one with high charges. The Government now recognises this, but we cannot be sure there will be strong safeguards in place.

"A better solution would be to automatically transfer these small pension pots into a small number of large-scale, low-cost pension schemes. This would also remove the bureaucracy and expense that pension schemes will face when trying to ensure that a pot follows a worker automatically."

He added: "It is odd that the government is stopping pension schemes refunding pension contributions for short spells of employment before it has a clear policy on small pot transfers in place. This risks creating a whole new generation of dormant small pots."

First published 23.04.2013

monique_simpson@wilmington.co.uk