Latest World Breaking News Online News Portal
Pension providers claim they cannot combine smaller pots due to current regulations, which place an administrative and financial burden on them. However, the Government has introduced a new plan to create a pension pots consolidator, which will take workers’ pensions and combine them into one by 2030.
Five of the UK’s largest providers have 11.2 million pension pots between them, a number set to increase by one million a year due to automatic enrolment. With each saver having at least 2.4 pension pots, an estimated 4.5 million savers may benefit from the plans.
The Department for Work and Pensions (DWP) said it was considering the launch of a small pension pots consolidator as part of its upcoming Pension Schemes Bill.
The DWP also pointed out that having numerous small pots can hinder savers from getting a good return on their retirement fund due to multiple flat rate charges.
Pension expert Quilter provided the Daily Express with an estimate of how much the average saver would be better off by if they were able to combine their pensions.
Jon Greer, head of retirement policy at Quilter explained that the average person holds 2.4 pension pots.
He said: “If we take someone with three pots of £1k where charges are applied at 0.75% – the upper end of workplace pension charges – and assume they consolidate £3k into a scheme charging 0.25%, over 30 years the pot would be worth £930 more, so £6,640 versus £5,710).”
Minister for Pensions 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.
“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.”
David Brooks, head of policy at Broadstone said the DWP’s paper data on its Small Pots Delivery Group highlighted the urgency of tackling the issue.
“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.”
Hannah English, head of DC corporate consulting, Hymans Robertson, said: “While this is a welcome step in the right direction, there are practical barriers such as the re-use of PDP infrastructure and processes which must be considered. The Feasibility Review will have to review these challenges carefully to surpass these barriers.
“We fully support any action to make change, and welcome the government’s role in working with the pensions industry to help build trust in the process and security of transfers, given the importance of member communications and the risk of scams.
“Looking ahead, the proposed deadline of 2030 for this consolidation to be in force would be a great achievement for members’ benefits if it is met. We look forward to seeing further insights in the forthcoming Pensions Bill and progression on the wide range of policy developments already in progress, as well as a clear timetable with detailed terms of reference for the second stage of the pensions review to address pensions adequacy of members.”
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.
“We look forward to working on delivering the recommendations of the Small Pots Development Group and are pleased the Government is tackling this long-standing issue in the Pension Schemes Bill.”
Rocio Concha, director of policy and advocacy at Which? 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 – a move that will provide greater value for savers and support them to keep track of their pensions. Which? looks forward to working with the government to ensure the pensions system is fit for the modern age.”
Gail Izat, workplace managing director at Standard Life, part of Phoenix Group, underscored the complexity due to increasing numbers of small pension pots: “The number of small pots in the system is growing at a rate of knots and ultimately heightens the risk that people will lose track of their hard-earned savings.”
“The introduction of consolidators that can administer these pots effectively and invest them dynamically will be a step forward and when combined with pension dashboards will empower people to take control of their savings. We look forward to working with government on the creation of this new system.”
Sir Steve Webb, former pensions minister and partner at LCP, said the issue of small pots could be solved by allowing people to have one pension that they were able to port when they moved jobs.
“If there were ‘magnetic pensions’, where your pension pot followed you from job to job, your money would build up in the right place – in the pension you are currently saving into.”
