Torsten Bell: There are now more small pension pots in the UK than pensioners. Photo: © House of Commons/Roger Harris (CC BY 3.0)
The government is set to create a small pensions pot consolidator in an initiative to tackle the growing problem of forgotten pots that people accumulate as they move between employers.
The government 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.
It said the "unnecessary" admin cost to the industry of overseeing all these pots was around £225m a year.
The small pot consolidator – announced by pensions minister Torsten Bell today – will be introduced as part of the Pension Schemes Bill, set to be introduced in parliament later this Spring.
The government said the consolidator would bring together each individual's small pots into one pension scheme that is certified as delivering good value to savers. It said individuals will retain the right to opt out.
It said the move would reduce costs and hassle for savers and would, in time, increase the pension pot of an average earner by around £1,000.
Bell said: "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 (SPDG). The group's findings – aimed at supporting the design and implementation of the new small pots consolidator scheme – 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 AE 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 opt-out option.
