Workers will be able to carry small pension pots with them from job to job from next year onwards under plans outlined by Pensions Minister Steve Webb.
Under the new system, the various small pots that someone may have scattered around from previous periods of employment will be brought together under their current employer's pension scheme.
The pension consolidation scheme will apply to pension pots worth up to £10,000, an amount that will be reviewed every five years (see MoneySavingExpert.com's Pension Need-To-Knows guide).
The scheme is due to come in from autumn 2016, and workers will initially be offered the option of opting into the scheme and consolidating their pension pots if they want to.
Eventually a system will be rolled out so that people automatically carry their pension pots with them unless they decide to opt out. Under the plans, pension transfers will first apply only to larger schemes, although these will cover the vast majority of pension scheme members in the country.
Webb first announced plans for the 'pot follows member' system in early 2013.
Webb says: "If we fail to take action there could be over 50 million dormant pension pots drifting away from savers by the middle of this century – that's billions of pounds floating around that should be funding better retirements for people.
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"Auto enrolment is helping people to save for retirement, but we must help them to keep their pots together so they know clearly that their pension is growing for their future. With the average person now having 11 jobs in their career, this further reform is essential."
More than five million people have now been automatically placed into a workplace pension as a result of automatic enrolment and over the next three years small employers will be brought into the scheme to encourage retirement saving.