Plans by the government to consolidate 13 million small pension pots worth £1,000 or less could be a “gamechanger” according to industry experts.
The news, announced yesterday (24 April), has been largely welcomed, with those campaigning for it describing it as a “significant and welcome step forward”.
AJ Bell head of public policy, Rachel Vahey, said: “Automatic enrolment is one of the big public policy success stories of our time. But it’s not without its flaws.
“People start a pension when they join an employer, but when they switch employer they often leave their old pension behind, neglected and unloved.
“This has created a plethora of small pension pots which are easily forgotten.
“Confirmation that government will press ahead with proposals to automatically combine the very smallest lost workplace pension pots worth £1,000 or less will help to address the issue. Although there is much more still to be done.”
At the centre of these proposals is the ability to automatically consolidate individuals’ pensions without them having to give permission.
However, pension savers can opt out if they want to and consolidate their pensions in a plan that they choose themselves, offering them the features they value.
The government said its Small Pots Delivery Group report sets out how it will “ensure that the deferred small pots which are currently plaguing the workplace pension market are eliminated.”
David Brooks, head of policy at Broadstone, said: “The DWP’s paper data on its Small Pots Delivery Group highlights the urgency of tackling this issue with the number of deferred pots across five large providers growing rapidly over the past few years from 8.3 million to 11.2 million.
“Consolidating small pots will make it simpler for savers to manage their pensions, especially in tandem with the pensions dashboard due to come on stream later this decade.”
Lizzy Holliday, director of public affairs and policy at now:pensions,said: “We welcome the publication of the DWP Small Pots Delivery Group report – which builds on the discussions last year.
“We have long advocated for an automated solution to the small pots issue, and we have worked closely with government and industry to drive forward a resolution for savers.
“We believe the multiple default consolidator model works best for savers compared to other models explored as part of the overall policy development process.”
Pete Glancy, head of pensions policy at Scottish Widows, said: “The proposal to consolidate small pots will help reduce industry operating costs and could lead to lower charges in the future for retirement savers.
“Reducing the number of smaller pots could also help boost engagement levels, with savers less likely to feel overwhelmed by the number of pots they have from previous employers.
“Higher levels of engagement should translate in the longer-term to better performance and improved decision making at the decumlation stage, as consumers become more informed.
“There’s still a lot of work to be done sifting through the technical aspects needed to make this work, which could take time, but we will continue to work with the government as it progresses.”
Lisa Picardo, chief business officer UK at PensionBee, said: “The publication of the Small Pots Delivery Group’s report marks a significant and welcome step forward in solving one of the most pressing challenges in today’s pensions landscape.
“The report sets out a clear roadmap for how the industry and government can begin to consolidate millions of small, deferred pension pots, starting with those worth under £1,000, and introduces a framework that puts the interests of savers at its core.
“Since the introduction of auto enrolment, there are now estimated to be a stock of 13 million small pots that have been created since the introduction of AE that will need to be consolidated, with an estimated additional 1 million further small pots created annually.
“Without targeted reform, this number will continue to grow, making it harder for people to keep track of their savings, while also increasing the cost and complexity of pension provision.”
