Age UK, the TUC and Which? have issued a joint statement saying that they are ‘extremely concerned’ by the approach to dealing with pension small pots in the Government’s consultation response published this week.

Pensions Minister, Steve Webb, is backing a ‘pot follows member’ solution that will see small pension pots automatically follow a member from job to job, moving from the previous employer’s scheme to that run by their new employer.

Webb said:

“We need a system where people build up worthwhile pension pots in one place rather than having lots of small pots all over the place. But at the moment every time someone moves to a new job there is a risk that they leave behind a small pension pot which they lose track of.

“Our plans will mean that individuals get better value for their savings and bigger pensions as a result.”

But the consumer groups warn that there is a risk of consumer detriment if the new employer’s pension scheme is worse than the old one. They also believe that there are practical issues as not every employee moves in an orderly way from job to job.

Instead the groups favour the alternative ‘aggregator’ approach where small pots could only be automatically transferred to a limited number of high quality pension schemes, which they say would guarantee low charges, good governance and economies of scale.

Michelle Mitchell, Charity Director General at Age UK, said:

“We know the difficulties that can face savers who have accumulated a number of small pension pots and we are disappointed with the Government’s suggested approach.”

The objection comes in the same week that, according to new figures from the Department for Work and Pensions, almost 11 million Britons are facing inadequate retirement incomes.

These ‘under-savers’ are expected to have pension incomes below the target levels suggested by the Pensions Commission in 2004.

Minister for Pensions, Steve Webb, said:

“This is a very large group of people who will face a big drop in their living standards on retirement if they do not take action now.

“Our reforms to the state pension and the start of automatic enrolment into workplace pensions will help people do this.”