The government must take radical and immediate action to stop small pension pots undermining the success of auto-enrolment (AE), Now Pensions says.
On the back of Pensions Policy Institute (PPI) research set to be released in full this afternoon (23 July) and supported by Now Pensions, the master trust said a small pots taskforce was needed to address the issue.
The research found up to 27 million smaller pots could be in master trusts by 2035. The success of AE is then likely to be damaged without government intervention to ensure the sustainability of the market in the long-term, the report said.
Now Pensions said a "high-profile taskforce" was needed by the end of the year to deliver a proposed solution by the end of 2021.
The master trust argued that a proposed government-formulated task force would provide a more immediate fix that current policy options could not. These include pot follows member, member exchange, default consolidator, carousel consolidator, and the dashboard.
Director of policy Adrian Boulding said: "The PPI work has revealed no single magic bullet with provide an immediate fix - there are merits and drawbacks to all solutions on the table. Until the issue of small pots is resolved, the cost of small pots must be paid for in some form."
A total of 10 million small deferred pots currently cost around £130m each year in administration, with the PPI estimating the 15-year bill for servicing an extra 17 million by 2035 will cost half a billion pounds.
The report estimated every active member in an AE pension is currently supporting an inactive one, but the PPI has said the figure is likely to increase to 1:3 in the next 15 years.
Now Pensions trustee chairwoman Joanne Segars said: "The proliferation of small pots is not good for members: they cannot benefit from economies of scale; easily lost track of their deferred pensions; and face multiple charges on each pot - for administration, benefit statements, and levy charges for example.
"The solution has to help members join up their pension pots and this needs to be careful and co-ordinated thought, and it is something we must now collectively tackle to ensure the best outcomes for members."
Defined contribution (DC) pensions are showing positive signs of market recovery after dramatic falls in the number of expected retirements this year due to the ongoing coronavirus pandemic.
Transfers between defined contribution (DC) schemes must continue to be prioritised by trustees during the Covid-19 pandemic, The Pensions Regulator (TPR) warns.
Many schemes are only at the start of their ESG journeys and are likely to be confused by reporting requirements as they also grapple with the ongoing Covid-19 pandemic, says the Pensions and Lifetime Savings Association (PLSA).
Savers with less than a decade to go until retirement have a reasonable timeframe ahead for their pension to recover from the market instability caused by the Covid-19 coronavirus, according to Unbiased.
The Institute and Faculty of Actuaries (IFoA) has launched an investigation into the increasing transfer of risks to consumers, with a particular focus on defined contribution (DC) pensions.