Pensions Minister Torsten Bell said there are now more small pension pots in the UK than pensioners.
People could get a retirement savings boost from a pension consolidator to scoop up smaller pots that may otherwise become lost. The Department for Work and Pensions (DWP) said there are now 13 million of these small pots, holding £1,000 or less, with the number increasing by around one million a year.
The UK Government said the move will also reduce admin costs for businesses as overseeing all these small pots also costs the pensions industry around £225 million in unnecessary admin costs. Under reforms introduced as part of the Pension Schemes Bill, each individual saver’s small pots will be brought together into one pension scheme, however, people will still have the right to opt out.
Pensions Minister Torsten Bell, said: “It’s great news that more people are saving for their retirement. But I want to make pension saving as simple and rewarding as possible.”
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He continued: “There are now more small pension pots in the UK than pensioners – raising costs and hassle for workers trying to track their savings. It also costs the pensions industry hundreds of millions of pounds every year.
“We will automatically bring together people’s small pots into one high performing pension, reducing costs as well as hassle for savers. In time this could boost the pension of an average earner by around £1,000 as part of our Plan for Change to put more money in people’s pockets.”
The announcement follows the work of the Small Pots Delivery Group. Their findings, aimed at supporting the design and implementation of the new small pots consolidator scheme.
These include:
- A Small Pots Data Platform to identify and source the pension pots that could be consolidated.
- A framework setting out the rules a scheme would need to follow to become a consolidator scheme. These would include already being in an Automatic Enrolment qualifying scheme, having a specified level of scale to manage expansion, providing good value for money for their members and providing additional protection for members from flat fee charges.
- Safeguards for savers whose pension pots would be consolidated which include a member op-out option.
DWP said transforming the pension landscape through the Pension Schemes Bill, set to be introduced in Parliament later this Spring, will deliver on the UK Government’s manifesto commitment to boost investment and returns for savers and make working people better off.
The Bill will help over 15 million people, boost pension pots by £11,000 and spur on greater investment in productive assets.
Zoe Alexander, director of policy and advocacy at the Pensions and Lifetime Savings Association (PLSA), said: “The accumulation of small pots creates unnecessary cost and complexity for savers and schemes alike.
“The PLSA has worked extensively with industry and the DWP (Department for Work and Pensions) to propose solutions and supports the model being proposed by the Government.”
Rocio Concha, Which? director of policy and advocacy, said: “Which? called for the consolidation of small pots under £1,000 before the election, so we are delighted that the Government is committing to doing this.”
Gaucho Rasmussen, Executive Director of Regulatory Compliance at TPR said: “Having lots of small pension pots erodes value and makes retirement decision-making difficult. We welcome steps to solve the problem and will support the UK Government and industry to make these plans a reality.”
Gail Izat, workplace managing director at Standard Life, part of Phoenix Group, said: “The introduction of consolidators that can administer these pots effectively and invest them dynamically will be a step forward.”
The Delivery Group was chaired by the DWP and had representation from:
- The Financial Conduct Authority
- The Pensions Regulator
- Pension and Lifetime Savings Association
- Association of British Insurers
- Pensions Administration Standards Association
- Chartered Institute of Payroll Professionals
- Association of Pensions Lawyers
- Which?
- Federation of Small Businesses
- Confederation of British Industry
- Chair of the industry led Small Pots Coordination Group
- Pensions Policy Institute