The Government has published its Small Pots Delivery Group Report setting out how it will “ensure that the deferred small pots which are currently plaguing the workplace pension market are eliminated”.
This will see 13 million small pension pots worth £1,000 or less consolidated. A combination of people switching jobs and automatic enrolment into workplace pensions is behind the increasing number of ‘lost’ pensions
Proposals to merge small pots have long been under consultation at the Department for Work and Pensions. Small pots are left behind when employees change jobs and so risk being forgotten about, while also tying up providers’ administration resources, a situation which has been exacerbated by auto-enrolment.
Measures only impact the very smallest pensions pots and millions of savers could still benefit from consolidating pension accounts themselves to reduce costs and get control of their retirement savings
The long-awaited Pensions Dashboards could still have a huge role to play in helping people get to grips with their retirement savings
David Brooks, Head of Policy at Broadstone, commented: “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.”
Commenting on the proposals, Rachel Vahey, head of public policy at AJ Bell, 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. But this doesn’t have to be a foregone conclusion. 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.
“Torsten Bell, the pensions minister, has made it clear that this is the start of the pension consolidation journey, and that the government has other pension workstreams in place to consolidate pension plans – including the creation of pension ‘megafunds’ and the launch of Pensions Dashboards. On this basis, we should be asking if an automatic consolidator is really needed and, given these other plans, whether this is the best use of government and pension provider – and ultimately pension saver – money.
“Instead, we need an overall strategy and clearer view on the sequencing of government plans – how they fit together and what they mean for workplace pension savers. Bell has promised this; let’s hope he delivers it soon.
“It’s important to note today’s announcements also only apply to pensions used for automatic enrolment, which, broadly speaking, means most private sector workplace pensions setup since 2013. That means those with older pension arrangements are outside the scope of the exercise and should still be thinking about whether they wish to take steps to consolidate their pension pots themselves.
“Pensions Dashboards could also have a big role to play, allowing savers to see all their pensions in one place online, reuniting them with lost pension wealth. But government still needs to set a date for the launch of the dashboard, and it remains to be seen whether the project will ever yield results.
“For those who want to take control of the pension consolidation process themselves, pension providers offer services that can help. Many providers, including AJ Bell, already offer simple, straightforward pension finding tools to make it easy for people to track down and combine their pension accounts. Getting pension dashboards in place could take things a step further and supercharge retirement planning by allowing savers to view all their pensions – including DC, DB and state pensions – all in one place.”
