New pensions pot consolidator could provide £1,000 pension boost
The Department of Work and Pensions has announced that the government intends to reform pensions management, with a pensions pot consolidator. Combining small pension pots to help working people. It has been estimated that the move will boost retirement savings for the average worker by around £1,000.
The changes are part of the government’s Plan for Change and it intends to implement them under the Pension Schemes Bill. The bill aims to drive investment in the pensions industry and deliver growth. It has also been suggested that the changes will see businesses saving £225 million per year in unnecessary administration costs.
Why are changes needed?
Many workers accumulate small pension pots. They get these as they move to different jobs. Around 13 million small pensions hold £1,000 or less. This number grows by 1 million each year.
Savers find it hard to manage several small pensions. They may pay flat-rate charges for each one. Thus meaning, they may not get good value.
What changes are proposed?
They will combine small pension pots into a single scheme and this scheme will be certified. This certification confirms it offers good value. Individuals can choose to opt out.
Firstly, combining pensions reduces administration costs. Secondly, it also makes it easier for savers to track their pensions, potentially making workers better off. An average earner could benefit by an estimated £1,000. Businesses will also have less work and the government suggests it could stimulate economic growth.
A small pots data platform is proposed. It will identify pensions for consolidation.
Comment by Minister for Pensions
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.”
Additional Comments
Zoe Alexander, Director of Policy and Advocacy at the Pensions and Lifetime Savings Association, said: “The accumulation of small pots creates unnecessary cost and complexity for savers and schemes alike. The PLSA has worked extensively with industry and the DWP to propose solutions and supports the model being proposed by the Government. “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, Which? Director of Policy and Advocacy, 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 said: “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.”
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